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Economics > 2. Australia's place in the global economy > Flashcards

2. Australia's place in the global economy Flashcards

1
Q

International Trade Flows (definition)

A

Flows of goods and services across different countries

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2
Q

International Trade Flows (types)

A

Debt, Foreign exchange (FDI), derivatives trading across borders. = International finance and investment

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3
Q

Investment (types)

A

Portfolio / Direct / Others (loans, deposits) / Derivatives

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4
Q

Portfolio Investment

A

purchase of shares, bonds & securities, etc.

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5
Q

Direct investment

A

When foreigners establish a subsidiary or buy a controlling interest in a local firm.

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6
Q

International trade contains…

A

Trade in more than 1 currency / Risks (exchange rates, changes in commodity prices, IR or government policy) / MNCs dominated / Affected by changes in the economic cycle

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7
Q

Foreign investment in Australia

A

Other countries established subsidiaries or bought controlling interests in manufacturing, agriculture, mining and services.

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8
Q

Foreign investment refers to…

A

foreign liabilities owed by Australian residents to non-residents.

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9
Q

Debt and equity borrowing trends

A

Australians are net borrowers

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10
Q

Australian Balance of Payments components

A

Current Account / Capital and financial account / Errors and omissions.

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11
Q

BOP Formula

A

CA +k + net errors & omissions = 0

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12
Q

Current Account Components

A

Balance on Trade (X-M) + Net Primary Income account + Net Secondary Income Account

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13
Q

Net primary income account

A

receipts and payments of employee compensation paid to non-resident workers and investment income

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14
Q

Net secondary income account

A

income from a property, dividend income from stocks, or royalties from intellectual property.

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15
Q

Current account shows…

A

all transactions involving money received(income, credits) and money spent(expenditure, debits) for exports and imports and the net primary and secondary income accounts.

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16
Q

Capital and financial account record…

A

foreign financial and investment transactions including borrowing, lending, sales and purchases of assets.

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17
Q

Capital Account

A

Records all credits and debits of the acquisition or disposal of non-financial assets.

18
Q

Financial Account

A

Credits and debits of transactions associated with investments

19
Q

Trends in current account

A

Australia has a CAD - Net primary account = main reason

20
Q

Trends in k

A

usually small deficits. Usually in surplus

21
Q

Exchange Rates

A

Rate at which a unit of currency is exchanged for a given amt. of foreign currency. Measure of relative value of purchasing power.

22
Q

Relative exchange rates can be…

A

determined by D&S (floating exchange rate) or Govt. (fixed exchange rate) and are usually measured through bilateral or cross rates.

23
Q

TWI (Trade weighted index) is used to…

A

represent one’s currency in terms of another.

24
Q

Factors affecting demand for AUD

A

Demand for AUD is a derived demand based on demand for our X and domestic assets by foreigners.

25
Q

Current account influences demand for M&X in… (examples)

A

Difference in inflation rates between AUS & others = Decreased demand for X / ToT (price of exports relative to imports) - rise in world economy = +D / International and domestic growth = +D for M = +S

26
Q

Supply is derived from demand for…

A

Imports and purchase of foreign assets

27
Q

Capital and financial account impacts demand for M&X in…

A

Differences in domestic & international IR. if higher in AUS = +D. if lower = -S for aud / Expectations about future changes

28
Q

Factors affecting supply of the AUD

A

Supply is derived from demand for M and purchase of foreign assets

29
Q

Fixed exchange rates

A

Central bank fixes exchange rates daily to another currency

30
Q

Advantage of fixed ex. rates

A

Advantage: Certainty for importers and exporters ; monetary policy can be conducted to whichever currency fixed XR is pegged against.

31
Q

Disadvantage of fixed exchange rates

A

Disadvantage: Speculation increase / central bank must hold more foreign reserve / XR does not respond to external shock (eg. GFC) Dis > Adv.

32
Q

How does RBA intervene w XR market

A
  1. XR might differ from long term equilibrium
  2. Smooth volatility if too much speculation
  3. Use foreign reserves to minimise excessive highs and lows
33
Q

Sterilised intervention

A

when buying AUD (taking currency out of the economy) RBA offsets this by buying or selling govt. securities through exchange settlement accounts

34
Q

Positive Economic effects of exchange rate depreciation

A

Positive - enhancing international competitiveness ; higher capital inflow, due to assets becoming cheaper.

35
Q

Unsterilised intervention

A

RBA does not do sterilised intervention, leading to changes in IR.

36
Q

Negative Economic effects of exchange rate depreciation

A

Negative - increase in import prices lowering in export prices. Short run = decrease in export income ; can lead to ↑ capital outflow as it reduces cost of foreign assets ; could lead to ↑ unemployment in exporting industries ; large appreciation will force RBA to intervene and reduce AUD by reducing r.

37
Q

Economic effects of exchange rate appreciation

A

Negative - In the long run appreciation will reduce competitiveness of exports ; greater capital outflow ; Increased unemployment in exporting business ; large appreciation will force RBA to reduce AUD by reducing r.

38
Q

J-Curve

A

effect of depreciation on a country’s trade balance - a depreciation = increase in export sales, having an expansionary effect on Aussie Economy.

39
Q

Structural Change example

A

In appreciation, Australia struggled to compete w China, India & ASEAN on exports such as education, tourism & ETMs. Since 2013, the AUD has depreciated by 26%. As a result, resources moved from mining to non-mining sectors such as construction and residential building.

40
Q

Australia’s trade policy examples

A

In 1973, the Whitlam Government announced a 25% reduction in protection to encourage efficiency and lower the prices of imports. Increased specialisation and economies of scale in production would result in a lower cost structure.

Economics (9 decks)

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