Foreign Investment

Question 1

FIA

Answer 1

Foreign investment into Australia

Question 2

AIA

Answer 2

Australian investment abroad

Question 3

Why does Australia rely on net inflows of foreign investment?

Answer 3

Develop economy, supplement domestic savings for high investment rate

Question 4

Why does Australia record a CAD and FAS?

Answer 4

Total investment exceeds savings, import foreign savings

Question 5

Liability

Answer 5

Something you owe

Question 6

Asset

Answer 6

Something you own

Question 7

Private entity

Answer 7

Anyone except the government

Question 8

Servicing costs

Answer 8

Interest repayment

Question 9

Stock variable

Answer 9

Cumulative, e.g. Debt

Question 10

Flow variable

Answer 10

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

Question 11

How is debt measured?

Answer 11

Proportion of wealth/assets, not GDP

Question 12

How do foreign entities prefer to raise capital?

Answer 12

Borrow, not sell assets

Question 13

Why is debt not a problem?

Answer 13

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

Increased real income

Question 14

How are liabilities removed?

Answer 14

Repayment

Question 15

Foreign equity

Answer 15

How much Australian assets are owned by foreign entities

Question 16

Gross debt

Answer 16

Total borrowing

Question 17

Net debt

Answer 17

Gross - Australian lending

Question 18

In which BoP account are investment income recorded in?

Answer 18

Current account

Question 19

Why are liabilities not a problem?

Answer 19

Fund our high levels of investment

Question 20

How are net foreign liabilities measured and why?

Answer 20

% of total financing in the economy, not GDP

Gives idea how funding comes from overseas

Question 21

What are the branches of foreign investment?

Answer 21

Liabilities and assets

Question 22

What are the components of liabilities?

Answer 22

Debt and equity

Question 23

Good debt

Answer 23

Borrowing to help develop the economy

Question 24

Bad debt

Answer 24

Borrowing to pay off other debt

Question 25

What happened to FI over the past decade?

Answer 25

Increased debt, decreased equity | 50% to 64% of GDP (2006-16)

Question 26

Why have servicing costs fallen over time?

Answer 26

Decreased world interest rates | Improved Aussie export performance

Question 27

Examples of assets

Answer 27

Buildings, machinery, equipment, land, mineral resources

Question 28

Trends since 2000

Answer 28

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

Question 29

Debt criticisms

Answer 29

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

Question 30

Why are the criticisms dumb?

Answer 30

Big "ifs"

Question 31

Foreign investment

Answer 31

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

Question 32

Foreign investment make up (gross)

Answer 32

60% debt securities, 40% equity | 26% direct, 51% portfolio, 23% other

Question 33

Direct investment

Answer 33

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

Question 34

Portfolio investment

Answer 34

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

Question 35

Debt securities

Answer 35

Tradable debt

Question 36

Why might income from FI not leave the country?

Answer 36

Dividend may be rolled back into the company

Question 37

How are share purchases classified?

Answer 37

Equity investment

Question 38

FI influences

Answer 38

Expectations, interest rate differentials, political stability

Question 39

Where is Australia on the Human Development Index?

Answer 39

2nd to Norway

Question 40

Aggregate demand

Answer 40

How much people are spending

Question 41

Infrastructure

Answer 41

Everything in the process of construction to sales | Transport and associated (roads, fuel)

Question 42

Why does mining draw a high level of foreign investment?

Answer 42

High profit expectations

Question 43

Effect of decreased FI

Answer 43

Decreased SoL, GDP, Economic Growth

Question 44

What does the net international position record?

Answer 44

Stock/level of FIA/AIA

Question 45

Interest rate differential

Answer 45

Difference between the interest rates of 2 nations