US & World Economies World Economy Trade Policy Financial Account and How It Works When a Rise in the Financial Account Is Bad By Kimberly Amadeo Kimberly Amadeo Kimberly Amadeo is an expert on U.S. and world economies and investing, with over 20 years of experience in economic analysis and business strategy. She is the President of the economic website World Money Watch. As a writer for The Balance, Kimberly provides insight on the state of the present-day economy, as well as past events that have had a lasting impact. learn about our editorial policies Updated on March 26, 2022 Reviewed by Erika Rasure Reviewed by Erika Rasure Erika Rasure, is the Founder of Crypto Goddess, the first learning community curated for women to learn how to invest their money—and themselves—in crypto, blockchain, and the future of finance and digital assets. She is a financial therapist and is globally-recognized as a leading personal finance and cryptocurrency subject matter expert and educator. learn about our financial review board Share Tweet Pin Email In This Article View All In This Article Financial Account Subaccounts How It's Part of the Balance of Payments Balance of Payments Photo: SDI Productions / Getty Images The financial account is part of a country's balance of payments. The other two parts are the capital account and the current account. The capital account measures financial transactions that don't affect income, production, or savings. Examples include international transfers of drilling rights, trademarks, and copyrights. The current account measures international trade of goods and services plus net income and transfer payments. The financial account is a measurement of increases or decreases in international ownership of assets. The owners can be individuals, businesses, the government, or its central bank. The assets include direct investments, securities like stocks and bonds, and commodities such as gold and hard currency. The financial account reports on the change in total international assets held. You can find out if the number of assets held increased or decreased. It does not tell you how much in total assets is currently being held. Key Takeaways The financial account reports foreign ownership of domestic assets and domestic ownership of foreign assets.If it increases, that means foreign money is flowing into the country.If it decreases, the country's money is flowing into foreign markets.The financial account is part of the balance of payments. The other two parts are the capital account and the current account. The Two Subaccounts of the Financial Account The financial account has two main subaccounts. The first is domestic ownership of foreign assets. It measures money flowing out of the country to purchase foreign assets. If this increases, it subtracts from the financial account. The second subaccount is foreign ownership of domestic assets. It measures money flowing into the country to pay for the asset. If this increases, it adds to a country's financial account. The financial account components are similar in each subaccount. The only difference is whether the asset is owned by someone in the country or a foreigner. Domestic Ownership of Foreign Assets This subaccount is further divided into three types of ownership: private, government, and central bank reserves. No matter which entity owns the foreign asset, increases subtract from the financial account. Private owners can be either individuals or businesses. Their assets include: Deposits at foreign banks, such as a Yankee CD Loans to foreigners Securities of foreign-owned companies Direct investments made in foreign countries Commodities, such as gold, held in other countries Government owners can be at the federal, state, or local level. Most foreign assets are owned by the federal government. Its assets can include all of the above, but most are gold and foreign currencies held in reserve. This component also includes the government's reserve position in the International Monetary Fund. The nation's central bank can own all of the above except for the reserve position in the IMF. Also, it owns currency swaps with other central banks. Foreign Ownership of Domestic Assets This subaccount is further divided into two types of ownership: private and foreign official assets. When foreigners increase their ownership of a country's assets, it adds to the financial account. These domestic assets include: Deposits owned by foreigners held at the country's banks Loans made by foreign banks to domestic banks Foreign private purchases of a country's government bonds, such as U.S. Treasury notes Corporate securities, such as stocks and bonds, owned by foreigners Foreign direct investment, such as reinvested earnings, equities, and debt Other debts owed to foreigners Hard assets, such as gold and other commodities The country's currency Foreign official assets include: Assets mentioned above that are held by foreign governments or foreign central banksNet shipments of the country's currency to foreign governments or foreign central banks The financial accounts measure the change in international ownership of assets. This should not be confused with the income, such as interest and dividends, that is paid out on the assets owned. That is measured by the current account. The Financial Account Is Part of the Balance of Payments The financial account is a large component of the balance of payments. It adds to the balance of payments when it's positive, or when foreign money is flowing into the country to purchase assets. It subtracts from the balance of payments when domestic money is flowing out of the country to purchase foreign assets. Note If the financial account runs a large enough surplus, it can help offset a trade deficit. That's not a good thing. If the financial account offsets the trade deficit, it means the country is selling off its assets to pay for purchases of foreign goods and services. That's like selling off your land to pay for groceries. You would be better off investing in that land by farming it to grow your food. It’s not sustainable to sell off all your assets for something consumable. Balance of Payments Current AccountCurrent Account DeficitU.S. Current Account DeficitTrade BalanceImports and ExportsU.S. Imports and Exports SummaryU.S. ImportsU.S. Imports by Year for Top 5 CountriesU.S. ExportsTrade DeficitU.S. Trade DeficitU.S. Trade Deficit by CountryU.S. Trade Deficit With ChinaCapital AccountFinancial Account Was this page helpful? Thanks for your feedback! Tell us why! Other Submit Sources The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy. Bureau of Economic Analysis. "A Guide to the U.S. International Transactions Accounts and the U.S. International Investment Position Accounts," Federal Reserve Bank of New York. "Balance of Payments,"