Foreign Investment Flashcards
FIA
Foreign investment into Australia
AIA
Australian investment abroad
Why does Australia rely on net inflows of foreign investment?
Develop economy, supplement domestic savings for high investment rate
Why does Australia record a CAD and FAS?
Total investment exceeds savings, import foreign savings
Liability
Something you owe
Asset
Something you own
Private entity
Anyone except the government
Servicing costs
Interest repayment
Stock variable
Cumulative, e.g. Debt
Flow variable
Shows a change over a year, e.g. GDP
How is debt measured?
Proportion of wealth/assets, not GDP
How do foreign entities prefer to raise capital?
Borrow, not sell assets
Why is debt not a problem?
Short time period (33% repaid in the year, 70% in 5)
Increased real income
How are liabilities removed?
Repayment
Foreign equity
How much Australian assets are owned by foreign entities
Gross debt
Total borrowing
Net debt
Gross - Australian lending
In which BoP account are investment income recorded in?
Current account
Why are liabilities not a problem?
Fund our high levels of investment
How are net foreign liabilities measured and why?
% of total financing in the economy, not GDP
Gives idea how funding comes from overseas
What are the branches of foreign investment?
Liabilities and assets
What are the components of liabilities?
Debt and equity
Good debt
Borrowing to help develop the economy
Bad debt
Borrowing to pay off other debt
What happened to FI over the past decade?
Increased debt, decreased equity
50% to 64% of GDP (2006-16)
Why have servicing costs fallen over time?
Decreased world interest rates
Improved Aussie export performance
Examples of assets
Buildings, machinery, equipment, land, mineral resources
Trends since 2000
Liabilities increased $2tn
Assets increased $5.3tn
Wealth increased $3.3tn
Wealth per capita increased
Debt criticisms
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
Why are the criticisms dumb?
Big “ifs”
Foreign investment
Foreign entity establishes new business, purchases property/shares in Australia
Foreign investment make up (gross)
60% debt securities, 40% equity
26% direct, 51% portfolio, 23% other
Direct investment
Foreign entity owns 10%+ of a domestic enterprise
Link to ownership/control
E.g. MNCs, joint ventures
Portfolio investment
All other investment that isn’t direct, <10% ownership
Speculative, short term, volatile
Rapid changes destabilise market
Sensitive to interest rate differentials
Debt securities
Tradable debt
Why might income from FI not leave the country?
Dividend may be rolled back into the company
How are share purchases classified?
Equity investment
FI influences
Expectations, interest rate differentials, political stability
Where is Australia on the Human Development Index?
2nd to Norway
Aggregate demand
How much people are spending
Infrastructure
Everything in the process of construction to sales
Transport and associated (roads, fuel)
Why does mining draw a high level of foreign investment?
High profit expectations
Effect of decreased FI
Decreased SoL, GDP, Economic Growth
What does the net international position record?
Stock/level of FIA/AIA
Interest rate differential
Difference between the interest rates of 2 nations
