enlighten me, please (BOP question) (1 Viewer)

[m1nx]

been reading over bulmer, riley and dixon (definitely not fun, but eco assessment on monday) and just wanted to clarify something~

if say a foreign company invests in australia, will this show up on BOTH bop accounts or just one? which one(s)?!? and which one is the one that relates to foreign debt? i'm so confused.

 

[AGB]

if a foreign company invests in australia, that foreign investment will show up on the capital and financial account (financial account to be more specific). if that investment comes in the form of debt then australian firms/government are obliged to pay debt servicing costs (interest) and that will show up on the net income account on the current account. if the investment comes in the form of equity, and the overseas firm earns a return on that equity i.e. dividends, then that too will show up on the net income account.

hope that clears it up

 

[m1nx]

yes it does, thank you so much!
the wonders of this site, honestly ... !!!

 

[Bambul]

Initially the credit on the financial account (from the investment in Australia) coincides with a debit on the current account (from importing goods - bought by the Australian companies that have extra money to invest in capital assets).

In future periods that debt/equity will need to be paid back in the form of interest/dividends (respectively). This debit on the current account corresponds with either a credit on the current account (Australia would have to export more goods/services) or a credit on the financial account (borrwoing from overseas to pay for our interest/dividend payments).