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I have a question related to recording in BOP Let say we have two countries:

  • DOMES (domestic country)
  • EXT (external country)

a company in EXT invest a new factory in DOMES. I don't know how this would be record in BOP I know that one side of transaction is recorded under:

  • FINANCIAL ACCOUNTS // DIRECT INVESTMENT // Net Incurrence of Liability // Equity and Investment fund shares // quity other than reinvestment of earnings (3AA100 L AA)

but I don't know where is the other side will be recorded.

Thank you Phan

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Assuming country EXT builds a factory in DOMES:

  • For country DOMES: this is direct investment liability
  • For country EXT: this is direct investment asset
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It depends. The Company from EXT acquired some assets in DOMES, but who they bought it from? what about the settlement? Was it paid cash, stocks, bonds? The assets that came in copensation for the asset acquisition, were they issued by some resident of DOMES?

I'll try an example because this is a complex situation.

Groceries Inc, a company headquartered in EXT buys 3 grocery stores in DOMES. Each store was sold at their market value of 1,000 DOMESian pesos (call them pesos). The guys at the Central Bank of DOMES will record that as a liability in their BOP (just as you correctly pointed out). Now, the settlement was done in three ways:

  1. They paid for one of the stores with EXTian dollars (or just dollars), which were wired to the offshore account of the owner, in a bank of EXT.

The guys at the Central Bank of DOMES will record that as an asset under "Other Investment"/Deposits.

  1. The second store was paid for with stocks of 2 companies: 500 in Groceries Inc stocks and the remaining 500 in stocks from a DOMES company.

The guys at the Central Bank of DOMES will record the 500 received in Groceries Inc stocks under "Portfolio Investment"/Equity and Investment fund shares. The other 500 will be recorded as -500 net incurrence of liabilities under "Portfolio Investment"/Equity and Investment fund shares. Why? Because those stocks (issued by a resident of DOMES) used to belong to a non-resident but are being transferred to another resident of DOMES.

  1. The third store was sold by someone who already owns 9.9% of the stocks issued by Groceries Inc, and she received the 1,000 dollars in company's stocks, making her owner of over 10% of the shares.

The guys at the Central Bank of DOMES will record this as an increase in the Direct Investment assets. The rule of thumb for distinguishing portfolio investment from direct inv (and this is not necessarily observed at all times) is that the investor owns 10% of the shares.

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