Foreign Investment Final Flashcards
(20 cards)
Foreign Investment Def
inflow of money from foreign investors.
Reason for foreign investment in Aus
Australia’s historic saving investment gap,
2 broken foreign investment things
borrowing (foreign debt) or foreign ownership (foreign equity).
Net International Investment Position 2 Defintions
Records our stock or level of foreign investment into Australia (FIA) and the level of Australia investment abroad (AIA).
Difference between Aus foreign liablities and foregin assets
2024 FI stats net foregin debt, foreign equity, NIIP
net foreign debt was $1266b, foreign equity was -$546b, Net International Investment Position was $720b. Note negative net foreign equity means that Australia now owns more foreign equity than it owes.
FDI
Investment for one country to another country’s assets or establishing new business
Minimum 10% eqity purchase required
provides investor w manage+influence operations
Long lasting influence
more stable and less prone to sudden outflows
FPI
- Refers to the investment in a company’s shares, bonds or assets.
- Not for the purpose of controlling or directing a firms operations or management
- Typically less than 10% of equity purchase required
- Usually held for a shorter term and is more speculative.
- Less stable and more prone to sudden outflows
How much of Aud inward fpi is what and examples
- Australian Government Bonds – Foreign investors purchase Australian government-issued bonds, which provide fixed interest payments over time. These bonds are considered low-risk and are attractive to international investors seeking stable returns.
- Corporate Bonds – Similar to government bonds, however Australian companies issue bonds to raise funds from international investors.
Superannuation
Superannuation funds – Mandatory contributions by Australian employers. These funds are invested by superannuation companies for our retirement.
Superannuation balances have increased from $148 billion (1992) to $3.5 trillion (2024)
Top investors dont confuse
top 4 overseas investors are United States, UK, Japan and the European Union.Australia is a highly attractive destination for FDI. The total stock of FDI in Australia has increased on average 6% per year since 2010.
Net foreing debt breakdown
Private debt 70%, public/gov secot 30%
What is Aus net foreign debt
($1158bn) is the largest component of our Net Foreign Liabilities.
Is gov debt bad
gov debt is not bad if funds used to finace infrastrucutre for eg that will increase future income. On other hand contracting economy means les tax receipts and more welfare payments and might ned to be used to fiance this and this is seen as less than ideal.
Why is prviate debt considered superiror
as it has the profit motive in mind.
Benefit of FI - S-I gap and economic activity
Supplements Aus domestic saving to fund higher level of investment and will increase EG, employment, national income and therefore higher living standards.
enefit #2 – Productivity, costs and international competitiveness
nvestment also finances and expands the productive capacity of the economy by increasing the stock or amount of physical capital. (Airports, rail links, mines, agriculture projects)
This moves the production possibility frontier of an economy outwards.
Benefit #3 – Technology and innovation
Foreign direct investment encourages the transfers of new ideas and technologies, which will increase productivity, aggregate supply and international competitiveness.
Most of our inward FDI comes from the US, UK and Japan. Their technological know-how and managerial skills can help improve the efficiency of Australian industries and assist in the long term growth of the economy.
In addition, improvements in capital and infrastructure such as transport or communication networks can improve the capital to labour ratio.
Costs #1 – Australian assets, control and security. “Loss of economic sovereignty”
When most capital inflow in Australia was in the form of equity, the concern was in regards to the “selling” of Australian assets. Increases in foreign equity will result in a loss of control of domestic assets or a loss in economic sovereignty.
his Darwin port was leased for 99 years to a Chinese company in 2015.
Cost 2 Interest Burden on Foreign Debt
inward foreign investment in Australia is now in the form of borrowing. This adds to the stock or level of Australia’s foreign debt.
An argument is that this large foreign debt imposes a burden on the economy.
An increase in interest rates could see Australia’s servicing costs on foreign investment also rise, to levels that could be unsustainable or compr
Types of Exchange Rates
Floating Exchange Rate:
Determined by market forces of supply and demand.
Australia has had a floating exchange rate since 1983.
Fixed Exchange Rate:
Government or central bank sets and maintains the rate.
