Monetary transactions arise between nations due to movement of capital also.

Capital flows both ways. It comes into a nation from the rest-of-the world; it goes out from a nation to the rest-of-the world. Inflows of capital form credit entries in balance of payments and outflows of credit form debit entries.

Capital transactions principally take the following forms:

A.    Foreign investment
A₁ Foreign direct investment:
(a)    By foreigners in India (+)
(b)    By Indians in the rest-of-the world (-)

A₂ Portfolio investment:
(a)    By foreigners in India (+)
(b)    By Indians in the rest-of-the world (-)

B. Loans
B₁ External assistance:
(a)    By foreigners to India (+)
(b)    By Indians to the rest-of-the world (-)

B₂ Commercial borrowing:
(a)    By Indians abroad (+)
(b)    By foreigners in India (-)

C. Deposits by NRIs
     (a) Fresh deposits by NRIs (+
     (b) Withdrawal of deposits by NRIs (-)

The sum total of the net value of A+B+C is called balance of payments on capital account.

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