It refers to an accounting system informing the international transactions of a country.

The value of incoming flows to and the value of outgoing flows from the country are recorded.

A payment by a foreigner into the country. 

A payment by the country to a foreigner.

There are four basic groups: Current account, capital account, financial account and reserve assets.

It involves all credit and debit items arising from export and import transactions of all goods and services, income receipt, and payment transactions in the country.

It fundamentally consists of unilateral transfers occurred in the country with the rest of the world.

Because it usually has a small balance relative to current account.

It (except the official international reserve changes) states the private finance account balance in the balance of payments. 

They are the quasi money assets which are held by government and are accepted in international payments.

By subtracting the increase in financial liabilities from the increase in financial assets.

For two different types of investments:

1. To invest for domestic capital accumulation (domestic investments

2. To invest abroad for obtaining an income flow (net foreign investments).

(1) Developing countries had considerably increased their participation to international economic integration by liberalizing their financial markets, foreign exchange regimes and capital accounts and also opening them for the foreigners.

(2) Developing countries had also increased investment opportunities by privatizing their public enterprises and encouraging the deepening in financial markets.

They refer to capital movements arising from lending and borrowing transactions among governments.

They are capital flows based on debt instruments with a maturity less than one year.

buying and selling transactions of bonds and other long term securities internationally.

The speculation activities in which speculators who realize the existence of a price increase in the market may intend to obtain excessive profit by engaging regular buying to create further increase in the price and selling when the targeted price is achieved.

The investments made by individuals or firms through buying a firm, providing the establishment capital for a new company or increasing the capital of an existing company in other countries.

The purchase of securities such as bonds and stocks for financial purposes by foreign investors.

With two different channels: Financial flow and trade flow.

The investments in which the foreign fund owners purchase transactions of capital market instruments like bond and shares in the receiving country.

To obtain income financially; they do not want to control or takeover the company whose shares or bonds are bought.

When the banking sector in a country is unable to fulfill its lending function and confronts with the risk of insolvency.

When there is an unexpected and sudden collapse of domestic currency unit (high level of depreciation in the flexible exchange rate regime or high level of devaluation in the fixed exchange rate regime).

When the debtor cannot fulfill his/her obligations (interest and principal payment) on time and a need shows up to restructure the debt.

(1) Inconsistent and unsustainable monetary and fiscal policies followed by the government, (2) volatility of foreign capital flows that the country receives.