Balance of Payments and Exchange Rates

Debt-Servicing Ratio

Proportion of export revenue used to make repayments on foreign debt, a measure of debt sustainability

Managed Float

Actions of the central bank to intervene in the foreign exchange market

Nominal Rate of Protection

Numerical value of the actual rate of protection listed by a country

Terms of Trade

Measures the relative movements in the prices of an economy's imports and exports over a period of time. Calculated as export price index divided by import price index X 100

Trade Weighted Index

A measure of the value of the Australian dollar against a basket of foreign currencies of major trading partners, weighted according to their significance to Australia's trade flows

International Competitiveness

Refers to the ability of an economy's exports to compete on global markets by selling products of higher quality or lower price than competitors

Balance of Payments

Record of the transactions between Australia and the rest of the world, consisting of the current account and the capital and financial account

Capital and Financial Account

Records borrowing, lending, sales, and purchases of assets between Australia and the rest of the world, involving longer-term and reversible transactions

Current Account

Shows the receipts and payments for trade in goods and services, primary and secondary income flows between Australia and the rest of the world

Net Primary Income

Component on the current account calculated by subtracting primary income debits from income credits, including interest payments, dividends, and rent

Net Secondary Income

Includes all transactions in which products or financial services are provided without a specific good or service being provided in return

Floating Exchange Rate

An exchange rate system where the Reserve Bank does not intervene to influence the value of the currency

Appreciation in AUD

An increase in the value of Australia's currency in terms of another currency

Depreciation in AUD

A decrease in the value of Australia's currency in terms of another currency

Supply of AUD

Created by Australians selling AUD to convert their currency into a foreign currency

Demand for AUD

Created by foreigners buying AUD to convert their foreign currency into AUD

Foreign Debt

Total level of outstanding loans owed by Australian residents to overseas residents

Foreign Equity

Total value of Australian assets such as land, shares, and companies in foreign ownership

Foreign Liabilities

Australia's total financial obligations to the rest of the world

International Borrowing

When a resident of a foreign country lends to an Australian resident

Portfolio Investment

When an individual investment represents less than 10% ownership

Foreign Direct Investment

Movement of funds between economies for the purpose of establishing a new company or buying a substantial proportion of shares in an existing company

Capital Account

Consists of transfer of capital and purchase and sale of non-produced and non-financial assets

External Stability

Aim of government policy to promote sustainability on the external accounts to avoid currency volatility

Current Account Deficit

Recorded when the debits in the current account are greater than the credits

Dividends

Profit returns received by the shareholders of a business

Elaborately Transformed Manufacturers (ETMs)

Technologically advanced and high value-added manufacturing products

Intermediate Goods

Semi-finished goods transformed into higher-value goods before sale to consumers

Net Errors and Omissions

Entry on the balance of payments ensuring that the sum of the current account and the capital and financial account equals zero

Foreign Remittances

Transfers of income from Australian residents to residents in foreign countries

Debit

Flow of funds out of Australia

Credit

Flow of funds into Australia

Bilateral Trade Agreement

Trading agreement between 2 countries

Fixed Exchange Rate

Exchange rate pegged by the country's central bank

Foreign Exchange Market

Market in which the currencies of different countries are exchanged for one another

Multilateral Trade Agreement

Trading agreements between many nations at one time

Net Foreign Debt

Gross Debt minus Australia's holdings of foreign reserves, and lending Australian residents have made overseas

Interest Rate Differential

Difference in interest rates between countries

Speculative Investment

Investment that creates a distortion in asset values for short term profit-taking

Debt-Servicing Ratio

Proportion of export revenue used to make repayments on foreign debt, a measure of debt sustainability

Managed Float

Actions of the central bank to intervene in the foreign exchange market

Nominal Rate of Protection

Numerical value of the actual rate of protection listed by a country

Terms of Trade

Measures the relative movements in the prices of an economy's imports and exports over a period of time. Calculated as export price index divided by import price index X 100

Trade Weighted Index

A measure of the value of the Australian dollar against a basket of foreign currencies of major trading partners, weighted according to their significance to Australia's trade flows

International Competitiveness

Refers to the ability of an economy's exports to compete on global markets by selling products of higher quality or lower price than competitors

Balance of Payments

Record of the transactions between Australia and the rest of the world, consisting of the current account and the capital and financial account

Capital and Financial Account

Records borrowing, lending, sales, and purchases of assets between Australia and the rest of the world, involving longer-term and reversible transactions

Current Account

Shows the receipts and payments for trade in goods and services, primary and secondary income flows between Australia and the rest of the world

Net Primary Income

Component on the current account calculated by subtracting primary income debits from income credits, including interest payments, dividends, and rent

Net Secondary Income

Includes all transactions in which products or financial services are provided without a specific good or service being provided in return

Floating Exchange Rate

An exchange rate system where the Reserve Bank does not intervene to influence the value of the currency

Appreciation in AUD

An increase in the value of Australia's currency in terms of another currency

Depreciation in AUD

A decrease in the value of Australia's currency in terms of another currency

Supply of AUD

Created by Australians selling AUD to convert their currency into a foreign currency

Demand for AUD

Created by foreigners buying AUD to convert their foreign currency into AUD

Foreign Debt

Total level of outstanding loans owed by Australian residents to overseas residents

Foreign Equity

Total value of Australian assets such as land, shares, and companies in foreign ownership

Foreign Liabilities

Australia's total financial obligations to the rest of the world

International Borrowing

When a resident of a foreign country lends to an Australian resident

Portfolio Investment

When an individual investment represents less than 10% ownership

Foreign Direct Investment

Movement of funds between economies for the purpose of establishing a new company or buying a substantial proportion of shares in an existing company

Capital Account

Consists of transfer of capital and purchase and sale of non-produced and non-financial assets

External Stability

Aim of government policy to promote sustainability on the external accounts to avoid currency volatility

Current Account Deficit

Recorded when the debits in the current account are greater than the credits

Dividends

Profit returns received by the shareholders of a business

Elaborately Transformed Manufacturers (ETMs)

Technologically advanced and high value-added manufacturing products

Intermediate Goods

Semi-finished goods transformed into higher-value goods before sale to consumers

Net Errors and Omissions

Entry on the balance of payments ensuring that the sum of the current account and the capital and financial account equals zero

Foreign Remittances

Transfers of income from Australian residents to residents in foreign countries

Debit

Flow of funds out of Australia

Credit

Flow of funds into Australia

Bilateral Trade Agreement

Trading agreement between 2 countries

Fixed Exchange Rate

Exchange rate pegged by the country's central bank

Foreign Exchange Market

Market in which the currencies of different countries are exchanged for one another

Multilateral Trade Agreement

Trading agreements between many nations at one time

Net Foreign Debt

Gross Debt minus Australia's holdings of foreign reserves, and lending Australian residents have made overseas

Interest Rate Differential

Difference in interest rates between countries

Speculative Investment

Investment that creates a distortion in asset values for short term profit-taking