External Balance

External Balance
-being able to meet all its financial obligations to other countries
-affected by current and capital flows

Current Flows:

Export and imports
-borrowing occurs to pay debt
-if export does not > import, trade balance deficit

Income transfer overseas
-interest payments on loans and dividend payments to owners of shares in domestic firms & other payment to foreigners (outflow of money)
-if income flow in > outflow, income transfer surplus archieved

3 Current Accounts:
Good and Services
(Export and import)

Income Transfer
(International payment and receipt)

Current Transfer
(giving without returns)

Current account deficit (CAD)
-import > export
-high level of capital inflow into Australia

The Australian Capital and Financial Account:

-total receipt > total payment, positive/surplus

-2 types of foreign investment

~Direct Investment
-Ownership more then 10%
-involves establishment and continued operation of firms and businesses within Australia
~Portfolio investment
-less then 10% firm purchased
-commercial bonds, foreign government securities and debentures
-depends on Aus's level of interest rates, share prices and level of business confidence

-income repatriation (send money back overseas)

-foreign ownership (country lose sovereignty over resources, owns more then 50% of company)

Indicators of External Balance
-Current account deficit as percentage of GDP (3% of CAD as a percentage of GDP)
-Net foreign debt as a percentage of GDP (40%-50%)
-Exchange rate (outflow > inflow, $ exchange fall)