Introduction to Finance

balance of trade 
net value of a 
country’s exports of goods and 
services compared to its imports
merchandise trade balance 
net 
diff erence between a country’s 
import and export of goods
current account 
summary of the 
fl ow of funds between one country 
and all other countries involving 
the sale and purchase of goods and 
services plus funds from income-
generating fi nancial assets during 
a specifi ed period
capital account 
summary of the 
fl ow of funds between one country 
and all other countries involving the 
transfer of fi nancial assets across 
country borders during a specifi ed 
time period
fi nancial account 
summary of the 
fl ow of funds between one country 
and all other countries involving 
foreign investments in fi xed assets 
and fi nancial assets during a 
specifi ed time period

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6.7 Developments in U.S. International Transactions
153
Table 6.3, under the fi nancial account heading, shows the net U.S. acquisition of fi nancial 
assets (excluding fi nancial derivatives), net U.S. incurrence of liabilities (excluding fi nancial 
derivatives), and the net impact of fi nancial derivatives. The net impact of these three accounts 
(acquisition of fi nancial assets less incurrence of liabilities plus fi nancial derivatives) resulted 
in a net borrowing from fi nancial account transactions of –$239.6 billion.
Due to the diffi
culty in accurately measuring the fl ow of funds between countries, a stat-
istical discrepancy account is used to balance cumulative diff erences across the current, cap-
ital, and fi nancial accounts. For 2014, the –$239.6 billion on the fi nancial account transactions 
less the –$389.5 billion on the current account and capital account transactions resulted in a 
statistical discrepancy of $149.9 billion. 
When U.S. imports exceed exports of goods and services, a negative current account 
balance in the balance of payments statement occurs. To off set current account defi cits, 
direct investments (business fi xed assets and acquisitions), and portfolio investments (corporate 
stocks and bonds and government debt securities) by foreign businesses and governments 
need to be greater than the direct and portfolio investments of their U.S. counterparts. The Fed 
may also adjust its holdings of foreign exchange reserves when needed.