Chapter 7: Foreign Investment

Question 1

Foreign Investment

Answer 1

Cross border movement of finance caused by borrowing and the sale of asset

Question 2

Factors

Answer 2

• Pay Interest on Previous Debt
• Expansion of Australia Investment Abroad
• Exchange Rate Fluctuation
• Finance CAD
• Savings Investment Gap
• Expenditure Production Gap

Question 3

Positive Effect of FDI

Answer 3

• Close Investment Gap
• Develop Import Competing Industry
• Encourage Technology/ Ideas Transfer
• Raises Government Revenue
• Finance CAD
• Trigger Multiplier Effect

Question 4

Negative Effect of FDI

Answer 4

• Loss of Ownership
• Vulnerable to Change in World Economy
• Cause CAD to Worsen
• Hindrance to Domestic Investment
• Bad Behaviour by MNC

Question 5

Positive Effect of Foreign Debt

Answer 5

• Most Debt is Owned by Private Sector
• Low Debt Ratio
• No Issue of Loss of Ownership
• Expansion of Industry
• Finance CAD

Question 6

Negative Effect of Foreign Debt

Answer 6

• Downgrade Credit Rating
• Vulnerable to External Shock
• Valuation Effect
• Rising in Interest Rate
• Less Room for Fiscal Stimulus