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Flashcards in Foreign Investment Deck (45)
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1

FIA

Foreign investment into Australia

2

AIA

Australian investment abroad

3

Why does Australia rely on net inflows of foreign investment?

Develop economy, supplement domestic savings for high investment rate

4

Why does Australia record a CAD and FAS?

Total investment exceeds savings, import foreign savings

5

Liability

Something you owe

6

Asset

Something you own

7

Private entity

Anyone except the government

8

Servicing costs

Interest repayment

9

Stock variable

Cumulative, e.g. Debt

10

Flow variable

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

11

How is debt measured?

Proportion of wealth/assets, not GDP

12

How do foreign entities prefer to raise capital?

Borrow, not sell assets

13

Why is debt not a problem?

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

14

How are liabilities removed?

Repayment

15

Foreign equity

How much Australian assets are owned by foreign entities

16

Gross debt

Total borrowing

17

Net debt

Gross - Australian lending

18

In which BoP account are investment income recorded in?

Current account

19

Why are liabilities not a problem?

Fund our high levels of investment

20

How are net foreign liabilities measured and why?

% of total financing in the economy, not GDP
Gives idea how funding comes from overseas

21

What are the branches of foreign investment?

Liabilities and assets

22

What are the components of liabilities?

Debt and equity

23

Good debt

Borrowing to help develop the economy

24

Bad debt

Borrowing to pay off other debt

25

What happened to FI over the past decade?

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

26

Why have servicing costs fallen over time?

Decreased world interest rates
Improved Aussie export performance

27

Examples of assets

Buildings, machinery, equipment, land, mineral resources

28

Trends since 2000

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

29

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

30

Why are the criticisms dumb?

Big "ifs"