The Capital Account (KA)

• The current account does not include the purchase and sale of ?nancial and non-?nancial

assets. All such transactions are re?ected in the capital account portion of the BOP accounts.

Once again, a positive value for the capital account is called a capital account surplus, a

negative value is called a capital account de?cit.

• The capital account consists primarily of three types of transactions:

1. Purchase and Sale of Assets

- Purchases of U.S. assets by foreigners are credits to the capital account (+)

- Purchases of foreign assets by U.S. residents are debits to the capital account (-)

What counts as an asset? Purchases of stocks or bonds (?nancial investment) or pur-

chases of a part or whole of foreign based companies (direct investment). The capital

account is where the BOP accounts starts to get tricky. Since U.S. residents can also

sell some of the foreign assets they had purchased before, we need to track the sale of

assets as well. The easiest way is to record the sale of assets in the BOP in the exact

opposite way we record the purchase of assets (i.e. think of a $500 sale as a purchase of

a -$500 asset). Therefore,

- Sales of U.S. assets by foreigners count as debits to the capital account (-)

- Sales of foreign assets by U.S. residents count as credits to the capital account (+)