1. What is foreign investment?

What is investment spending?

The purchase of capital equipment which can include:

• spending by firms on machinery (business fixed investment)

• the purchase of new houses and apartments (residential investment)

What is foreign investment?

Refers to the flows of financial capital into and out of the Australian economy.

Financial flows are associated with the buying and selling of financial assets (shares, bonds, property and bank deposits)

Examples of outward foreign investment

An Australian resident buying shares in a US company

Examples of inward foreign investment

An Australian bank borrowing money from an overseas bank

What are flows of earnings?

With each flow of foreign investment there is a flow of earnings which consists of dividends, profits and interest

Recorded in the income section of the current account

Does Australia usually have more inward or outward foreign investment?

More inward foreign investment

What is Australia’s net international investment position?

The difference between the foreign investment into Australia (FIA) and Australian investment abroad (AIA)

IIP = FIA - AIA

Foreign debt

Relates to a country’s borrowing and lending of money

Foreign equity

Relates to a country’s buying of foreign assets and selling of domestic assets.

Examples that increase/decrease foreign debt

(only one)
If Australians borrow money from overseas, then this increases the level of Australia’s foreign debt.

If Australian investors lend money to overseas residents this will decrease the level of foreign debt.

Examples that increase/decrease foreign equity

(only one)
If an Australian superannuation fund purchases shares in an overseas company then this increases Australia’s equity assets.

If a company in the United States purchases shares in an Australian company such as BHP then this adds to Australia’s equity liabilities.

Is foreign investment in Australia a majority debt or equity?

Debt

Is Australian investment abroad a majority debt or equity?

Equity

Does Australia rely on a net inflow or outflow of foreign investment?

A net inflow to develop its economy and to supplement its domestic savings (savings-investment gap.)