BOP 2 PPT Flashcards
What are dividends?
Payments received from company profits when owning shares.
What is interest?
: Payments made on loans or received from lending money.
If an Australian buys shares in a US company, what type of income do they receive?
A: Dividends.
If an Australian company borrows money from a US company, what payment must they make?
Interest.
How is Net Goods calculated?
Goods exported minus Goods imported.
How is Net Services calculated?
Services exported minus Services imported.
What is included in Primary Income?
Primary income credits (positive) + Primary income debits (negative).
What is included in Secondary Income?
Secondary income credits (positive) + Secondary income debits (negative).
If the Current Account is in deficit, what must the Capital & Financial Account be in?
Surplus.
How is the Balance on the Current Account calculated?
Net Goods + Net Income.
What is the purpose of the Capital & Financial Account?
It balances the Current Account with an opposite entry.
What does the Capital Account include?
Non-produced, non-financial assets (e.g., patents, trademarks) and capital transfers (e.g., migrant funds).
Why is the Capital Account small in Australia?
ts balance is usually less than $1 billion.
What are the four categories of the Financial Account?
Direct Investment, Portfolio Investment, Reserve Assets, Other Investment.
What is Direct Investment?
Long-term investment where an investor owns 10% or more of a foreign firm.
What control does a Direct Investor have?
Significant influence over management.
Give an example of Direct Investment.
An Australian company buys 11% of Subway shares in the USA.
What is Portfolio Investment?
Short-term investment where an investor owns less than 10% of a foreign firm.
Does Portfolio Investment give control over a company?
No, it does not provide significant influence.
What is included in Portfolio Investment besides shares?
The purchase of debt or loans.
Give an example of Portfolio Investment.
An Australian company buys 9% of Subway shares in the USA.
What is recorded under Other Investment?
Transactions that don’t fit elsewhere, including import/export of currency.
What is recorded under Reserve Investment?
Reserve assets held by the Reserve Bank of Australia, like gold.
Why does the Balance of Payments sometimes not balance?
Due to recording errors or omissions.
urpose of Net Errors & Omissions?
To ensure the Balance of Payments balances.
What must the Capital & Financial Account and Current Account sum to?
Zero.
If the Capital & Financial Account is in surplus, what happens to the Current Account?
It must be in deficit.
How is a $20M purchase of shares in a foreign company recorded?
Debit entry in the Financial Account (Portfolio Investment).
Why is a share purchase recorded as Portfolio Investment?
Because it is less than 10% of a company.
How is a $20M export of currency recorded?
Credit entry under Other Investment in the Financial Account.
