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received from foreign individuals and governments to foreigners.In the current account, merchandise exports and imports are the most important items.Government transactions consist of loans to and from foreign official agencies.In the capital account, borrowings from foreign countries and direct investment by foreign countries represent capital inflows.When a payment is received from a foreign country, it is a credit transaction while payment to a foreign country is a debit transaction.The principal items shown on the credit side ( ) are exports of goods and services, unrequited (or transfer) receipts in the form of gifts, grants etc.The balance of payments account of a country is constructed in Table 10.The current account of a country consists of all transactions relating to trade in goods and services and unilateral (or unrequited) transfers.
The principal items on the debit side (-) include imports of goods and services, transfer (or unrequited) payments to foreigners as gifts, grants, etc., lending to foreign countries, investments by residents to foreign countries and official purchase of reserve assets or gold from foreign countries and international agencies.
The capital account of a country consists of its transactions in financial assets in the form of short-term and long-term lending’s and borrowings and private and official investments.
In other words, the capital account shows international flows of loans and investments, and represents a change in the country’s foreign assets and liabilities.
Long-term capital transactions relate to international capital movements with maturity of one year or more and include direct investments like building of a foreign plant, portfolio investment like the purchase of foreign bonds and stocks and international loans.
On the other hand, short- term international capital transactions are for a period ranging between three months and less than one year.