I am really confused and I hope you can help me. I know NCO is equal to acquisition of foreign assets by residents – acquisition of domestic assets by nonresidents. But I can't understand the transactions without purchases of goods. For example, when an American buys a share of a foreign company, acquisiton of foreign assets by residents increases, and I think acquisition of domestic assets by nonresidents(American dollars) should also increase. So these changes should offset each other and the transaction shouldn't affect the net capital. But I know this transaction increases US NCO. So, what am I missing ?
Net capital outflows from the US would increase. Net capital inflows for the foreign country (investment) would increase. This keeps the accounting equation equal. For the US S-I would increase, thus creating a balance of trade surpluse (even though these are financial assets). For the country receiving the inflow S-I (savings-investment) would decrease, increasing their deficit (assuming the balance of trade began equal). This balances both sides of the trade. Our net capital outflows grow by an equal amount to their net capital inflows in this situation.