The balance of payments, as indicated above, reflects the flow of real and financial resources between residents and non-residents. These flows accumulate and form reserves. Stocks arising from the international movement of financial resources are recorded in the balance sheet of international investments.
The balance of international investment (international investment balance) is a balance of payments statistical report showing the accumulated reserves of external financial assets and liabilities of the country.
Almost the balance of international investment is a financial account of a payment the balance, assets and liabilities of which are drawn up according to the following scheme:
reserves at the beginning of the period ⇒ operations ⇒ change in prices ⇒ change in exchange rates ⇒ other adjustments ⇒ reserves at the end of the period.
Investment position (investment position) – the balance of international investments at the end of a certain period, reflecting the totality of financial transactions, cost changes and other adjustment procedures that took place during the period under review, and determining the value of the country’s external assets and liabilities.
The difference in the gross external assets and liabilities of the country gives the value of its net investment position.
A net investment position (net investment position) is the relationship between the international financial resources available to the country and its debt to other countries.
Direct investment reserves are determined on the basis of their current market book value, indicated in the reporting of enterprises with direct investments. Portfolio investment reserves are recognized at current prices prevailing on the market at a certain date of the reporting period.
Based on the net investment position, you can approximately estimate the level of the country’s net investment income for its foreign assets and liabilities, which in some countries is a major item in the budget revenue and current account balance of payments. In principle, a rough estimate of investment income from abroad can be based on an assessment of the net foreign investment of a given country and the prevailing average interest rate on such assets over the past year. Typically, the Libor bet plus a small premium of 1 -1.5 percentage points is used. However, if the rate of income on external assets is greater than payments on external liabilities, net investment income will be positive, while a net investment position may be negative, for example, as a result of, that in the early years, dividends are usually less than the amount of equity investments.
Brief conclusions. So, “under the line” of the balance of payments, reserve assets are shown – the country’s international highly liquid assets, which are under the control of its monetary authorities or government and at any time can be used by them to finance the balance of payments deficit and regulate the national currency. The main criterion for classifying an asset as a reserve is to determine whether the government or the Central Bank can exercise real and direct control over it. The country’s reserve assets include monetary gold, SDR, reserve position in the IMF, foreign exchange and other assets. Countries experiencing difficulties in financing the negative balance of payments may resort to its exclusive financing – operations carried out by agreement and with the support of their foreign partners in order to reduce the negative balance to the level, which can be financed by traditional means. Among them – cancellation of external debt, exchange of debt on shares, borrowing to settle the balance of payments, re-issuance of debt and late payments on debt. The statistical report produced from the balance of payments is the balance of international investments, showing the accumulated reserves of external financial assets and liabilities of the country. The balance of international investment at the end of a certain period, called the investment position, reflects the combination of financial transactions, cost changes and other adjustment procedures that took place during the period under review, and determines the amount of external assets and liabilities of the country. A net investment position shows the ratio of international financial resources available to the country and its debt to other countries.