Components of Capital Account

Borrowings and lending to and from overseas: It includes all the borrowings made to and from overseas by any sector of economy.
Investments to and from foreign countries: There are two type of investments included in capital account:
(i). foreign direct investment (FDI): This includes purchase of assets which gives the buyer a direct control over the asset. For example: A purchase of building in a foreign country gives the buyer the ownership of that asset.
(ii). Portfolio investment: It refers to purchase of assets such as it does not give the buyer a direct control over that asset. For instance, an Indian buying shares in Google doesn’t give him ownership or control over Google. It also contains foreign institutional investments or FIIS.
Change in foreign exchange reserves: What are foreign exchange reserves? They refer to financial assets of the government held with the central bank of the country. This item serves as financing item in BOP. Any extraction from the reserve is credited while any injection in reserves is debited.

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