UNIT 3 AOS 3 - part 1 - BOP/Trade/NFD/NFL

Question 1

def

Balance of payments (BOP)

and what does BOP=?

and what does BOP equal to??

Answer 1

provide a record of financial transactions between residents of Australia and residents of rest of the world

BOP = 0

Question 2

def

Current account + components

What is BOMT + net services called?

Answer 2

Current account
* Records all receipts and payments of a ‘current’ nature

Balance of Merchandise trade (BOMT)
* net value of Australian goods export credits minus goods import debits.

Net Services
* net value of Australian service export credits minus service import debits.
* credit e.g., tourism into AUST

Net primary incomes
* receipts and payments of income flow that services net foreign liabilities (debt + equity) or reflect payments of foreign labour

Net secondary incomes
* Transection that involves the transfer of funds in one direction (creates no future or current obligation)
* E.G., gifts sent from overseas to Australia, payment of European pension to an Australian immigrant

BOGS or BOT

Question 3

Benefits of trade for Businesses

Answer 3

• International trade
• Firms sell to sell to larger market = benefit from economy of scale
• Spread fixed costs over larger volume outputs)
• ↓Cost per unit
• ↓prices
• ↑PP
• ↑access g/s
• ↑MLS

==============================
(not important)
allows for comparative advantage/specialization
= ↑efficiency in production
= ↓COP
= ↓prices for exports + domestic economy markets
= ↑pp
= ↑access (cheap + more production)
= ↑MLS

economics of scale

LINK TO LOWER PRICES

Question 4

Benefits of trade

for: cons, bus, govs

Answer 4

Consumers
* international trade
* foreign imports enter market
* increased competitve pressures
* AUST firms try to lower prices to compete (forced to inc productivity) [or they lose market share]
* cheaper prices = ↑PP = ↑ access g/s = ↑MLS

Greater choice for consumers
* ability to access range, diversity and Varity and access of goods and services easily = ↑access to g/s = ↑MLS

====
Businesses
* International trade
* Firms sell to sell to larger market = benefit from economy of scale
* Spread fixed costs over larger volume outputs)
* ↓Cost per unit (ACOP)
* ↓prices
* ↑PP
* ↑access g/s
* ↑MLS

(not really important)
allows for comparative advantage + specialization
= ↑efficiency in production
= ↓COP
= ↓prices for exports + domestic economy markets
= ↑pp
= ↑access (cheap + more production)
= ↑MLS

==== (not really neeeded)
Benefits of trade for Governments
Financial captial flows
(Since there is not enough savings to fund investments)
* Government can attract foreign investment for capital projects
= expend operations invest in new technologies, research+ developments and provisions of infrastructure
= ↑incomes, productivity = ↑MLS

Human capital flows
skilled migration = alleviate capacity constraints (tight) and skill shortages = g/s produced more and cheapy and at a higher quality

cheaper pries is important one

Question 5

Capital account def + Financial account

which part is it in as well?

also the parts of this

Answer 5

Captial account
* Movement of capital between nations

==================
Direct investment
* new assets and liabilities in a country setting up production on facility or controlling greater than (and equal to) 10% of company shares

Portfolio investment
* transection involving less than 10% of a company

Financial investment
other investments
reserve assets

CAFA

Question 5

Influences on the CAB

Structural Compoent

what type of factor??

Answer 5

Did i reference parts of the CAB???????

def: structural component on the CAB are long term non-cyclical factors WHICH TYPICALLY CAUSES A CAD, and are inbuilt features of the Australian economy

==================================

1. Relatively young country
   * There is a savings and investment imbalance (gap)
   * Not enough savings for investment required for capital expenditure
   * need to borrow money
   * ↑ NFD
   * with all the debt = a lot of PAYMENTS OF interest on debt
   * ↑ deficit relative to credits in NPI
   * ↓ CAB

2. Lack (low levels) of international competitiveness (IC)
* high cost structure and low levels of efficiency relative to best performing economies
* low IC (since low productivity)
* ↑ COP
* ↑ prices
* ↓ export demand for Australain g/s
* credits in ↓ BOMT
* ↓CAB

Δ = change

Question 6

Influences on the CAB

Cyclical Influences

Answer 6

• Movement in the CAB that is tied to changes in the economic cycle is referred to as the cyclical component of the current account
• CAB always changes in-line with the business cycle

	↑AD + ↑EG 
= ↑imports (since demand for imports ↑)
= ↑debits in BOMGT/NS
= ↓value in BOGS
= worsen CAB

• Growth and peaks = ↑ CAD / ↓ CAS - ↑ spending / ↓ savings = ↓CAB
• Contractions and Troughs = ↓ CAD / ↑ CAS - ↓ spending /↑savings = ↑CAB
• Global economic cycles - trading partner growth/demand

Question 7

define

Net foreign debt (NFD)

+ causes of NFD

Answer 7

The net financial obligations Australians have with rest of the world that stems from Australia’s total borrowings from overseas exceeding total lending to overseas.

CAUSES
Young country
* Need to borrow money because of our savings + investment gap
* to achieve higher living standards and potential with investment (in natural resources, education, tourism etc)

Interest on debt
* recorded in NPI of CA (reason for high CAD’s)

NFD = private debt (people + firms and is around 78%) + public debt (government)

Question 8

define AND EXAMPLES

Net foreign equities (NFE)

Answer 8

Financial obligations that stem from foreign ownership of assets such as property and shares.

(Less Australian ownership of foreign assets)

Question 9

diff between a part of the BOP and something else?
(e.g., TOT and BOMT)

Answer 9

part of the CA? = account of cash flow.
TOT is a ratio

Question 10

NFE NEGATIVE good or bad thing and why?

Answer 10

NFE is money leaving the country (but we still own the asset outside of australia so it’s a good thing!)