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Explain the components of NFIA.

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There are three components of NFIA. 

1. Net Compensation of Employees: The net compensation of employees receivable from the rest of the world is equal to the difference between compensation of employees received by resident workers who are living temporarily abroad or are employed abroad , and similar payments made to non- residents workers that are temporarily staying or are employed within the domestic territory of the country. 

2. Met Income From Property and Entrepreneurship: Net income from property and entrepreneurship is equal to the difference between the income received by way of interest, rent and profits by the residents of a country and similar payments made to the rest of the world. 

3. Net Retained Earnings of Resident Companies Abroad: Retained earnings refers to the undistributed profits of the companies. Resident companiesft.e. companies belonging to one country and working in the domestic territory of some other country) retain a part of their profits for further investment abroad. Likewise, foreign companies and their branches retain a part of their profits in the countries of their operation.

The difference between the retained earnings of resident companies located abroad and retained earnings of the foreign companies located in a country is equal to the net retained earnings from abroad.

Note: It must be noted that NFIA is zero in a closed economy as such economy does not deal with the rest of the world sector.

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