AUS BoP Flashcards
(24 cards)
what is BoP?
balance of payments
- record of all financial transactions between AUS residents and the rest of the world
- based on a double entry system in 3 ledger accounts
- every transaction in CA has an offset transaction in CAFA
what is credit and debit?
credit - money that flows into AUS
debit - money that flows out of AUS
what is the CA?
current account
- shows the net flow of money between AUS and the rest of the world ( in the last quater)
- CAS (surplus)
- CAD (deficit)
what is included in the CA?
- BOGS / balance of g/s / trade balance
- net primary income
- net secondary income
what is BOGS?
balance of goods and services
- difference between the value of AUS exports and imports of g/s
goods
credit (rural and nonrural)
debit (capital, consumption, intermediate goods)
services
credits and debits ( tourism, travel, edu, insurance, transport, finance)
what is net primary income?
income AUS residents earn from, less that they pay to the rest of the world from working and financial investment
- mainly to service direct, portfolio and other investment
what is net secondary income?
- income AUS residents earn from, less what they pay to the rest of the world from the government
- current transfers - transactions between AUS residents and the rest of the world where one party provides something to another without receiving anything in return ( eg. emergency aid)
what is CAFA?
capital and financial account
- net change in the ownership of assets and liabilities
- can be in surplus or deficit
what is the capital account?
- records credits and debits for the acquisition and/or disposal of non produced and non financial assets ( intangible assets, rights to use land)
- capital transfers - one party transfers ownership of something to another party without receiving anything in return ( grants, forgiveness of debt)
what is the financial account?
- transactions between parties that involve a change in ownership of AUS assets or liabilities
- credits and debits associated with direct investment, portfolio investment, financial derivatives, other investment and changes in the value of reserve assets
what are net errors and omissions?
- statistical errors and revisions of data in ABS calculations
CA + CAFA + net errors and omissions = 0
what are AUS CA trends?
- tends to record a CAD
- finances deficit with a surplus in CAFA by borrowing capital from overseas
- CAS in 2019/20 to 2022-23
- can lend capital overseas
what is foreign firms investing in AUS considered as?
- CAFA credit
- CA debit ( profits flow back to foreigners)
what is AUS investment overseas considered as?
- CAFA debit
- CA credit ( profits flow back to AUS)
what influences the CAD?
cyclical - changes in domestic and world eco growth
- increases when world growth < domestic growth (decrease in export income relative to income spending = larger g/s deficit)
- decreases or causes CAS when world growth > domestic growth
(export income grows more than import spending = g/s surplus )
structural - size of the net primary income deficit = servicing cost of AUS external liabilities
what is IC ?
international competitiveness
- IC of AUS exports (agri, minerals, manufactures) has a significant effect of volume sold
- IC of AUS imports or replacement industries impacts volume of imports purchased
- changes in IC affects g/s balance -> impacts CA
what influences IC?
- changes in domestic prices relative to overseas
- movements in exchange rate of AUS dollar ( more IC if value falls / depreciation)
what are IC measures?
rises in index = decreases AUS IC
- read unit labour costs (RULC) - pace of wage rise compared to productivity improvements and inflation
- value of AUD
what is TOT?
terms of trade
- relative prices a country receives for its exports and pays for its imports
- measured by index numbers ( base year = 100)
- TOT index = (X index / M index) x 100
what impacts TOT?
improvement
- X prices rise faster than M prices
- X prices fall slower than M prices
- country can finance a greater volume of M with existing X volumes
Deterioration
- X prices rise slower than M prices
- X prices fall faster than M prices
- country can finance a lower volume of M with an existing volume of X
what are AUS TOT trends?
historical deterioration
- reliance on agricultural and mineral exports
- imports consumer, manufactured, intermediate and capital goods
- long run decline in the export price index and rise in import price index
what is the debt servicing ratio?
% of export income that is paid in interest
what are the issues with CAD?
- financed by a surplus in CAFA through debt and equity borrowings
- growth in net foreign debt increases future debt and servicing costs
what is the purpose of foreign investment in AUS?
- encourage the inflow of foreign investment to improve AUS economic performance from access to foreign exchange and capital
- reflects general relation of trade controls, advances in ICT, lower transport costs, growth in global supply chains by MNC
- AUS relies on it to meet shortfall between domestic savings and investment
- improved international competitiveness of industries
- higher eco growth and employment
- better living standards
- loss of income in form of profit, rent, dividends to investors
- loss of control over resources and management decisions
