foreign investment Flashcards
gross foreign debt definition
the total of Australia’s overseas borrowing
net foreign debt definition
gross debt minus Australian lending to overseas
australia’s international investment position definiton
records the stock or level of foreign investment into Australia and the level of Australian investment abroad
liabilities defintion
something you owe
assets definition
something you own
foreign investment definition
refers to the stock of financial assets in Australia owned by foreign residents and financial transactions in the balance of payments that increase or decrease this stock
two categories of investment
direct and portfolio
why australia is a favourable nation for FI?
26 years of consecutive economic growth good opportunities for profits politically stable placed in the Asia-Pacific reason resource rich nation a skilled and educated workforce resilient
benefits of foreign investment
low domestic savings greater development of key industries employment retained profits overall business improvements
costs of foreign investment
portfolio investment can be destabilising
selling the farm arguement
foreign debt defnition
the amount of money that Australian residents, both public and private, owe to the rest of the world
foreign equity definition
the extent to which foreign residents own Australian assets
why is private debt more fabourable then public debt?
private firms are motivated by profit
private debt is more likely to result in increased investment
government debt on the other hand could result in a burden for future generations
why has foreign debt occured?
government borrowing to finance budget deficits and capital expenditure
savings investment gap
a growing current account deficit
development of global financial markets
benefits of foreign debt
creates employment opportunities
living standards increase
potential to reduce foreign debt in the long term
costs of foreign debt
credit rating may suffer, making borrowing more expensive
large income (interest) payments in the future and reduces consumption
foreign debt gets worse if the AUD depreciates
is there a correct amount of foreign debt?
depends on the composition (who borrows) and purpose (how it’s spent
public debt is bad as it creates a burden
the current account balance and foreign liabilities
- Australia has a large primary income deficit due to high levels of foreign investment
- servicing costs associated with foreign liabilities (interest and dividends) result in a large primary income deficit in Australia’s current account
