Chapter 4: Balance of Payments

Question 1

Link Between KAD and CAD

Answer 1

• FDI and Dividend/ Profit
• FD and Interest
• FDI (MNC) and Import
• Floating Exchange Rate Market

Question 2

Cyclical Factors

Answer 2

• ER
• ToT
• Domestic EG
• International EG
• IR
• Aud Credit Rating

Question 3

Structural Factors

Answer 3

• Export Base
• Savings Investment Gap
• Capacity Constraint
• International Competitiveness

Question 4

CAD Consequences

Answer 4

• Growth in Foreign Liability
• Increased Servicing Cost
• Increased Volatility for ER
• Constraint on EG
• Contractionary Macroeconomics Policy
• Investors Confidence

Question 5

Positive Implications of CAD

Answer 5

• Sign of Strong Economy
• Credit Rating
• Foreign Investment is Profit Motivated
• AUD is Relatively Strong
• Debt Servicing Cost is high but Debt Servicing Ratio is Maintained