CHAPTER 18 International trade and finance Part 2

Flashcards about International Trade and Finance

What is the balance of payments (BOP)?

A summary record of the international transactions between a country and others during a given period of time.

What does the balance of payments summary record?

The nature and value of inflows and outflows of goods, services, and financial assets.

What does the current account balance consist of?

Balances on merchandise trade, services, foreign income, and transfers.

What activities are recorded in the capital and financial account?

Dollar payment flows on account of purchases of foreign assets by Australians or purchases of Australian assets by foreigners, such as purchasing shares or bonds, extending loans, buying government securities or directly purchasing property.

What is the relationship between the current and capital accounts?

The current and capital accounts should balance; any deficit on the current account is financed by a surplus on the capital account.

What is the implication of a current account deficit in Australia historically?

Australians spend more than the income they generate, so foreigners are accumulating Australian assets.

Under what condition is the current account deficit not likely to be a problem?

Provided overseas funds are used to finance investment goods that earn income in the future.

What benefits have Australia experienced due to the current account deficit and capital account surplus?

Higher rates of economic growth than would otherwise have been possible.

When did Australia's current account go into surplus for the first time since 1975?

Mid-2019

What primarily drove Australia's current account surplus in 2019?

A very large trade surplus due to high prices for resource commodities, especially iron ore, along with a narrowed net income deficit.

What trend has been observed in Australia's net foreign liabilities and debt?

A gradual rise over the past 27 years.

What factor has significantly contributed to Australia's increased foreign liabilities since 1990?

Financial deregulation and the freeing up of international financial markets.