Foreign Investment PPT 3 Flashcards
(15 cards)
What are the two main types of foreign investment?
Borrowing (foreign debt) and ownership (foreign equity).
What happens when Australian residents borrow from overseas?
It increases Australia’s foreign debt liability.
What happens when Australian residents sell assets to foreign residents?
It increases Australia’s foreign equity liability.
Define Net Foreign Debt.
Net Foreign Debt = Foreign Debt Liability – Foreign Debt Asset
Define Net Foreign Equity.
Net Foreign Equity = Foreign Equity Liability – Foreign Equity Asset
What is the largest component of Australia’s Net Foreign Liabilities?
Net Foreign Debt, which was $1158 billion.
Who holds most of Australia’s foreign debt – public or private sector?
Private sector holds about 70%, and public sector holds about 30%.
Why is private foreign debt considered preferable to public foreign debt?
It’s driven by the profit motive, aimed at investment and economic growth, which can service debt over time.
When can public debt be seen as beneficial?
When it’s used for productive investments like infrastructure that increase future income and productivity.
What impact does foreign debt have on the Balance of Payments (BoP)?
It leads to interest payments, which contribute to the income account deficit in the BoP.
When might public foreign debt be seen as less ideal?
When it’s used to cover budget deficits during economic contraction, due to falling tax receipts and rising welfare costs.
How do global interest rates affect Australia’s foreign debt repayments?
Higher world interest rates increase Australia’s interest repayments, making debt less sustainable.
What happened to interest payments on foreign debt during COVID-19?
Global interest rates fell, so interest payments declined, easing pressure on repayments.
When is foreign debt considered beneficial for the economy?
When it is used for investment, leading to higher output, employment, and living standards.
Why does Australia rely on foreign investment to fund economic activity?
Because of a savings–investment gap (I > S), foreign capital helps finance that difference.
