Aus's Trade and Financial flows (1 Viewer)

[-pari-]

1) the disadvantages to aus. of high levels of foreign investment include...the sometimes volatile nature of speculative portfolio captial flows impacting on the exchange rate.

say what? what does it mean?
and how would portfolio investment impact the exchange rate?

2) advantage of foreign investment to australia: access to additional foreign exchange...meaning?

3) Net errors and omission on the balance of payments: i dont get this whole concept.

(a) "under floating exchange rate system, the balance of payments should always balance to zero" why?

(b) how does the net errors and omissions come about?
i mean...how can you just add it just like that...when it wasn't initally there....just to make the accounts add up to zero?! how does that work?

(c) net errors and omissions allow a surplus balance on CFA to exactly offset CAD. how?

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any help muchly appreciated!

 

[Sparcod]

1) the disadvantages to aus. of high levels of foreign investment include...the sometimes volatile nature of speculative portfolio captial flows impacting on the exchange rate. [/B]

say what? what does it mean?
and how would portfolio investment impact the exchange rate?

I'm sure YOU've said this before. Fluctuations in exchange rate are caused by "hot money" flows or investment for "speculative" purposes. Over 99% of flows on the foreign exchange market are for those reasons (surprisinlgy its not for trade or tourism). Lots of people do this and have become rich doing so. People like George Soros. He did so by moving his money to countries where higher interest rates are offered.

In the case of high foreign investment, if these foreign investors see a flaw in our economy (eg. high CAD) or some other defect (eg.political instability), there can be CAPITAL FLIGHT, where (I think) investors pull out all their funds and hence causes a drastic drop in economic activity. Reduced funds due to reduced inflow would mean depreciation in currency.

2) advantage of foreign investment to australia: access to additional foreign exchange...[/B]meaning?

More foreign investment=more investment?

3) Net errors and omission on the balance of payments: i dont get this whole concept.

Well...when doing the maths..there are mistakes but they're always small because the CAD always equals the K+FS

(a) "under floating exchange rate system, the balance of payments should always balance to zero" why?

Floating exchange rate means..demand of $A=supply.
demand means INFLOW (credits) and supply means OUTFLOW (debits).
I'll stop here.

(b) how does the net errors and omissions come about?
i mean...how can you just add it just like that...when it wasn't initally there....just to make the accounts add up to zero?! how does that work?

maybe rounding off? (I think)
Put it this way.
We know that $32.9 +$4.5= $37.4
If you rounded both figures off. then it's $33 + $5. which equals $38..

(c) net errors and omissions allow a surplus balance on CFA to exactly offset CAD. how?

Net "errors" are an assumption. Enough said.