Net Capital Outflow

Net Capital Outflow

Net Capital Outflow (NCO) is one of two major methods of determining the nature of a country's foreign trade (the other being the current account balance). NCO is the quantity of foreign assets held by residents of a given country minus the quantity of domestic assets in that country held by foreigners. A positive NCO means that the nation invests outside more than the world invests in it; a negative one, that the world invests in the country more than the country invests in the world.

It is linked to the market for loanable funds and the international currency exchange market in that, when graphed, the x-axis NCO is the quantity of the country's currency and the y-axis is the country's domestic real interest rate; the NCO graph has a negative slope as an increased interest rate domestically is an incentive for savers to do so at home rather than abroad.

This linkage partly determines the real exchange rate for that country's currency because one of the two determining variables of that market is the quantity of that country's currency available on the foreign exchange market--essentially, Net Capital Outflow (i.e. it is the x-axis in that market's graph). NCO serves as a perfectly inelastic supply curve for this market; thus changes in the demand for that country's currency (e.g. an increase in demand for products made in that nation) can only cause changes in the exchange rate.

NCO is always equal to Net Exports by an accounting identity, due to exports produced in one country being matched by reciprocal payments of some asset from a receiving second country.

References

Mankiw, N. Gregory. "Principles of Economics", Third Edition. Thompson South-Western, 2004. ISBN 0-324-26938-2


Wikimedia Foundation. 2010.

Игры ⚽ Поможем написать курсовую

Look at other dictionaries:

  • Net capital outflow — The importance of NCO. The domestic real interest rate determined in the domestic market for loanable funds moves along the NCO curve to determine the quantity of currency available for foreign exchange. This in turn determines the real exchange… …   Wikipedia

  • Capital flows in Japan — History = After World War II, Japan s return to world capital markets as a borrower was slow and deliberate. Even before the war, Japan did not participate in world capital markets to the same extent as did the United States or West European… …   Wikipedia

  • Capital account — In financial accounting, the capital account is one of the accounts in shareholders equity. Sole proprietorships have a single capital account in the owner s equity. Partnerships maintain a capital account for each of the partners. In economics,… …   Wikipedia

  • outflow — out‧flow [ˈaʊtfləʊ ǁ floʊ] noun [countable, uncountable] ACCOUNTING ECONOMICS money which is being taken out of a company, country etc: • The insurance company paid over $1.33 billion to policyholders, creating a vast cash outflow. • The… …   Financial and business terms

  • Net present value — In finance, the net present value (NPV) or net present worth (NPW)[1] of a time series of cash flows, both incoming and outgoing, is defined as the sum of the present values (PVs) of the individual cash flows of the same entity. In the case when… …   Wikipedia

  • capital account — noun 1. (economics) that part of the balance of payments recording a nation s outflow and inflow of financial securities • Topics: ↑economics, ↑economic science, ↑political economy • Hypernyms: ↑account, ↑accounting, ↑ …   Useful english dictionary

  • outflow — [[t]a͟ʊtfloʊ[/t]] outflows N COUNT: usu N of n When there is an outflow of money or people, a large amount of money or people move from one place to another. There was a net outflow of about ₤650m in short term capital. ...an increasing outflow… …   English dictionary

  • capital account — /kæpətl əˈkaʊnt/ (say kapuhtl uh kownt) noun 1. a business account stating the owner s or shareholder s interest in the assets. 2. that part of a country s balance of payments that forms a record of the inflow and outflow of loans and investments …  

  • Open economy — Part of a series on Economic systems Ideological systems Anarchist  …   Wikipedia

  • South Africa — Republic of, a country in S Africa; member of the Commonwealth of Nations until 1961. 42,327,458; 472,000 sq. mi. (1,222,480 sq. km). Capitals: Pretoria and Cape Town. Formerly, Union of South Africa. * * * South Africa Introduction South Africa… …   Universalium

Share the article and excerpts

Direct link
Do a right-click on the link above
and select “Copy Link”