foreign investment

Question 1

gross foreign debt definition

Answer 1

the total of Australia’s overseas borrowing

Question 2

net foreign debt definition

Answer 2

gross debt minus Australian lending to overseas

Question 3

australia’s international investment position definiton

Answer 3

records the stock or level of foreign investment into Australia and the level of Australian investment abroad

Question 4

liabilities defintion

Answer 4

something you owe

Question 5

assets definition

Answer 5

something you own

Question 6

foreign investment definition

Answer 6

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

Question 7

two categories of investment

Answer 7

direct and portfolio

Question 8

why australia is a favourable nation for FI?

Answer 8

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

Question 9

benefits of foreign investment

Answer 9

low domestic savings
greater development of key industries
employment
retained profits
overall business improvements

Question 10

costs of foreign investment

Answer 10

portfolio investment can be destabilising

selling the farm arguement

Question 11

foreign debt defnition

Answer 11

the amount of money that Australian residents, both public and private, owe to the rest of the world

Question 12

foreign equity definition

Answer 12

the extent to which foreign residents own Australian assets

Question 13

why is private debt more fabourable then public debt?

Answer 13

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

Question 14

why has foreign debt occured?

Answer 14

government borrowing to finance budget deficits and capital expenditure
savings investment gap
a growing current account deficit
development of global financial markets

Question 15

benefits of foreign debt

Answer 15

creates employment opportunities
living standards increase
potential to reduce foreign debt in the long term

Question 16

costs of foreign debt

Answer 16

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

Question 17

is there a correct amount of foreign debt?

Answer 17

depends on the composition (who borrows) and purpose (how it’s spent
public debt is bad as it creates a burden

Question 18

the current account balance and foreign liabilities

Answer 18

• 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