Foreign Investment Flashcards
FIA meaning
Foreign investment into Australia
AIA meaning
Australian Investment Aboard
Liabilities
Created when AUS borrows money from overseas or sells assets to foreign residents
liable to pay money to another individual/nation
Assets
Created when Australia leans money to overseas or buys assists from overseas residents
other individuals/nations are liable to pay money
Equity
Ownership
Debt
liable for borrowing
Current Account Balance
income is recorded in current account. its direction into or our of Australia changes the CAB
foreign equity
a representation of how much foreign residents own Australian assets
foreign liabilities
how much public and private residents owe overseas residents
Gross debt
total of all borrowing
Net debt
gross debt minus Australian lending
*best measure
proportion of government debt
31%
proportion of private debt
69%
trends in foreign debt
foreign debt has increased while foreign equity has decreased
benefits of debt
increased standard of living
accumulation of wealth
*wealth per capita
develop the economy
stock variable VS flow variable
stock: accumulation over time
flow: shows change over 1 year
criticisms of debt
potential down grade of credit rating
high interest repayments reduces SoL
if ToT deteriorates this reduces X income
if AUD depreciates, the size of foreign debt increases
if trade partners economies slow, reduction in X income
foreign investment
when a foreign entity establishes a new business or purchase property or shares in Australia
proportion of FDI ,portfolio and other investment in AUS
FDI: 27%
Portfolio: 48%
other: 25%
FDI
when a foreign entity owns 10%+ of Australia enterprise
therefore significant influence (linked to ownership ad control)
done through the purchasing of shares (equity investment)
volatility of FDI and portfolio investment
FDI is less volatile then portfolio investment
portfolio investment is short term speculative
influences of foreign investment
expectations (profit)
interest rate differentials
political stability
Foreign investment by industry
mining
manufacturing
finace and insurance
Foreign investment my country
U.S.A
U.K
Japan
Cost of debt
if used to fund preexisting debt = bad debt
can contribute to a two speed economy
Benefits from FDI
helps fund the SI gap
enables higher incomes, employment, standards of living, economic growth
develops sectors (mining and energy sectors)
encourages competition and innovation
enhances productivity thorough capital deepening
