A capital account transaction refers to a transaction that involves the movement of capital between countries, typically involving assets and investments that have long-term benefits or ownership interests.
Examples of capital account transactions include:
- Foreign direct investment (FDI): Investment in a foreign country with the aim of establishing a lasting interest or influence in a foreign enterprise.
- Portfolio investment: Investment in foreign stocks, bonds, and other financial instruments.
- Acquisition or sale of fixed assets: The purchase or sale of a company’s assets, such as land, buildings, or machinery.
- Loans and borrowings: Borrowing or lending money from a foreign entity.
- Transfer of ownership of intellectual property rights: The sale or licensing of patents, copyrights, and other forms of intellectual property rights to a foreign entity.
Capital account transactions are usually regulated by the government, and restrictions may be imposed on such transactions in certain circumstances. These transactions can have a significant impact on the balance of payments and the overall economic growth of a country.