Home / Financial Balance

Financial Balance

Share on Facebook Share on Twitter Share on LinkedIn

The financial balance includes the loans requested by a country abroad and the investments or deposits made by foreign countries to a country. It's a subaccount within the balance of payments.

In short, the financial balance reflects the variation of the financial assets and liabilities of a country with respect to foreign countries.

Composition of the financial balance

It consists of two large groups: financial assets and liabilities. But to obtain the result of the financial balance, it's obtained through the net variation of said assets and liabilities.

- Net variation of financial assets. It's calculated by the acquisition of assets by residents against foreigners in the country minus their sales. This net variation of financial assets constitutes a payment abroad. The calculation of the financial balance is indicated with a negative sign.
- Net variation of financial liabilities. It's calculated by the acquisition by foreigners of financial assets issued by residents in the country, minus their sales. This net variation of financial liabilities constitutes an income from abroad. The calculation of the financial balance is indicated with a positive sign.

The calculation will be obtained by adding the net variation of assets and financial liabilities.

Result of the financial balance

It can have three different financial results:

- Surpluses. This supposes a positive result of the financial balance, that's to say, the income is superior to the payments.
- Deficit. This supposes a negative result, that's to say, the payments are superior to the income.
- Neutral. This assumes a result of zero, that is, the payments are equal to the income.

A country usually prefers a surplus in the financial balance, since that implies a greater number of income than payments. When there is a deficit, it means that the country is being financed by foreign countries, in relation to financial products.

What is included?

The financial products included in the financial balance are very varied and change depending on the country under analysis. The main examples are the sale of shares, bonds and obligations, real estate investments, etc.

Importance of the financial balance

It indicates whether a country is capable of attracting foreign capital (surplus) or if national capital goes to foreign countries (deficit). However, to obtain more global conclusions, it's necessary to analyze the balance of payments, since the financial balance is still a sub-account of the former.


See also:
Back to top

Home | About Us | Contact | Privacy Policy | Terms of Use

Copyright 2011 - 2019 - All Rights Reserved