If immigrants go, or migrants,
as we're going to call them, go to live in another country, okay?
They will send gifts home to their family.
They will send of their income home to their family in the home country to
live off of.
These are called remittances and they enter into the balance of payment.
So, for example, if someone from El Salvador is living in New York and
they send some of there income home to their family,
that would be in the secondary account for the United States and for El Salvador.
For the United States, it would be a negative item because the money is flowing
out, for El Salvador, it would be a positive item because money is flowing in.
So, that's the current account, trade, primary income, secondary income.
Now on the other side of the balance of payments we think of it as sort of a T
with current account over here.
On the other side we have the financial account.
[COUGH] And like I said, every item is entered twice, so
it will go into the current account, it will also go into the financial account.
On the financial account, we have financial transactions, okay?
The first one is net direct investment.
So in any given year, foreigners will buy assets in a country.
And when we put them into direct investment,
they are long-term investments.
So, for example, foreigners by land or
they buy an entire company or they build a factory.
That would be direct investment.
Now, we're netting this out.
So we will see the flows of foreign money into a country, and then the flows of that
country's money into foreign countries in direct investments.
The second part is portfolio investment.
And portfolio investment is short-term investment.
Direct investment is long-term, I'm buying land, I'm buying a factory,
I'm going to be there for a while.
Portfolio investment is what we sometimes think of as,
hot money, this is short-term investments.
So I buy some shares on the stock market,
totaling less than 10% of the shares in the company.
Or I buy a short-term bond, this is short-term money,
hot money that can quickly leave, can quickly come back, okay?
So, on the financial side, we've got net direct investment.
We've got net portfolio investment.
We also have bank and non-bank claims and liabilities, so these are loans, right?