Capital account

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Capital account is a part of the balance of payments, together with current account. Capital account means the net change in the national ownership of assets.

It can be calculated as: Foreign direct investment+Portfolio investment+Other investment+Reserve account.

Portfolio investment is the purchase of shares and bonds (short term investments). Other investment includes loans. Reserve account is operated by the central bank, and it is important to note here that when capital flows in a country, and there is a current account surplus, the currency can appreciate - or vice versa. Some of the ways in which the central bank can influence the value of the currency is by purchasing or selling its national currency in the market. Another method taht is frequently used is to increase or decrease the interest rate.

Autonomous Transactions: financial transactions undertaken by the residents of a country for normal business purposes without regard for their impact on the balance of payments. 

Official Transactions: "compensatory transactions" undertaken for the specific purpose of bringing a country's payments into balance [1]


References

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  1. Grieco and Ikenberry, Ch 3: “The Economics of International Money and Finance.” pp 73.