The Financial Account of the balance of payments records an economy’s transactions in external financial assets and liabilities. The transactions are classified by:
(1) functional type of investment (direct investment, portfolio investment, other investment, and reserve assets);
(2) assets and liabilities or, in the case of direct investment, direction of investment;
(3) type of instrument; and, in some cases,
(4) domestic sector and (5) original contractual maturity. This distinction between external assets and liabilities is of primary importance for the functional types of investment other than direct investment. Transactions should be recorded on a straight asset/liability basis. Even when a net basis is used for recording the Financial Account of the balance of payments, transactions in financial assets should be shown separately from transactions in financial liabilities.