HELP!! current account and capital/financial account!!! (1 Viewer)

[marxisming]

hey guys, i need your help. i need help in understanding how... a reduction in Australian investment overseas is a credit entry in the capital financial account and therefore contributing to a greater deficit in the current account.

we all know that the deficit on the current acocunt is equal to the surplus in the capital and financial account.

i understand that a surplus in the capital and financial account is made up of credit entries: 1) increased foreign investment overseas
example: Country X invests in Australia, say FDI (this would be considered as a net inflow on the capital/financial account ) and Country X will then earn its return on their investment therefore money flowing out from Australia to country X, and hence recorded on the net income deficit.

i get that ... but what i dont get is the other credit entry: 2) reduction in Australian investment overseas
how does less Australians investing overseas represent a net inflow on the cap/financial account but at the same a net income deficit ???


have i missed something, totally lost the plot or fretting over something very simple???!!???

your help is much appreciated!!! thanks in advanced!!
i got this info from the Tom Dixon & John O Mahony- Leading Edge.

 

[z600]

I think when you said that "Australian investment oversease is reducing" you must assume that inflow investment into australia is constant. If you have a increase inflow and decrease outflow, you creating a greater surplus on the CFA and hence a greater deficit on the CA (since interest has to be paid to thoes inflows and less interest is paid back to AUS due to reduce AUS outflow of investment)

 

[marxisming]

wow that makes a lot of sense. thanks a bunch !! = D