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Economics > Foreign Investment > Flashcards

Foreign Investment Flashcards

1
Q

FIA

A

Foreign investment into Australia

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2
Q

AIA

A

Australian investment abroad

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3
Q

Why does Australia rely on net inflows of foreign investment?

A

Develop economy, supplement domestic savings for high investment rate

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4
Q

Why does Australia record a CAD and FAS?

A

Total investment exceeds savings, import foreign savings

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5
Q

Liability

A

Something you owe

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6
Q

Asset

A

Something you own

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7
Q

Private entity

A

Anyone except the government

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8
Q

Servicing costs

A

Interest repayment

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9
Q

Stock variable

A

Cumulative, e.g. Debt

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10
Q

Flow variable

A

Shows a change over a year, e.g. GDP

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11
Q

How is debt measured?

A

Proportion of wealth/assets, not GDP

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12
Q

How do foreign entities prefer to raise capital?

A

Borrow, not sell assets

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13
Q

Why is debt not a problem?

A

Short time period (33% repaid in the year, 70% in 5)

Increased real income

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14
Q

How are liabilities removed?

A

Repayment

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15
Q

Foreign equity

A

How much Australian assets are owned by foreign entities

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16
Q

Gross debt

A

Total borrowing

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17
Q

Net debt

A

Gross - Australian lending

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18
Q

In which BoP account are investment income recorded in?

A

Current account

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19
Q

Why are liabilities not a problem?

A

Fund our high levels of investment

20
Q

How are net foreign liabilities measured and why?

A

% of total financing in the economy, not GDP

Gives idea how funding comes from overseas

21
Q

What are the branches of foreign investment?

A

Liabilities and assets

22
Q

What are the components of liabilities?

A

Debt and equity

23
Q

Good debt

A

Borrowing to help develop the economy

24
Q

Bad debt

A

Borrowing to pay off other debt

25
Q

What happened to FI over the past decade?

A

Increased debt, decreased equity

50% to 64% of GDP (2006-16)

26
Q

Why have servicing costs fallen over time?

A

Decreased world interest rates

Improved Aussie export performance

27
Q

Examples of assets

A

Buildings, machinery, equipment, land, mineral resources

28
Q

Trends since 2000

A

Liabilities increased $2tn
Assets increased $5.3tn
Wealth increased $3.3tn
Wealth per capita increased

29
Q

Debt criticisms

A

Potential credit rating downgrade
Higher interest rate decreases SoL
ToT deterioration reduces exports income
AUD depreciation increases foreign currency denominated debt
Slow trade partner economy reduces export income

30
Q

Why are the criticisms dumb?

A

Big “ifs”

31
Q

Foreign investment

A

Foreign entity establishes new business, purchases property/shares in Australia

32
Q

Foreign investment make up (gross)

A

60% debt securities, 40% equity

26% direct, 51% portfolio, 23% other

33
Q

Direct investment

A

Foreign entity owns 10%+ of a domestic enterprise
Link to ownership/control
E.g. MNCs, joint ventures

34
Q

Portfolio investment

A

All other investment that isn’t direct, <10% ownership
Speculative, short term, volatile
Rapid changes destabilise market
Sensitive to interest rate differentials

35
Q

Debt securities

A

Tradable debt

36
Q

Why might income from FI not leave the country?

A

Dividend may be rolled back into the company

37
Q

How are share purchases classified?

A

Equity investment

38
Q

FI influences

A

Expectations, interest rate differentials, political stability

39
Q

Where is Australia on the Human Development Index?

A

2nd to Norway

40
Q

Aggregate demand

A

How much people are spending

41
Q

Infrastructure

A

Everything in the process of construction to sales

Transport and associated (roads, fuel)

42
Q

Why does mining draw a high level of foreign investment?

A

High profit expectations

43
Q

Effect of decreased FI

A

Decreased SoL, GDP, Economic Growth

44
Q

What does the net international position record?

A

Stock/level of FIA/AIA

45
Q

Interest rate differential

A

Difference between the interest rates of 2 nations

Economics (19 decks)

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