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Foreign Investment Certification Exam With Questions And Answers Graded A+.
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What is foreign investment? - correct answer The cross-border movement of finance caused by borrowing and the sale of assets. What are the types of foreign investment and their %? - correct answer 1. Dire...

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  • August 22, 2024
  • 5
  • 2024/2025
  • Exam (elaborations)
  • Questions & answers

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Foreign Investment

What is foreign investment? - correct answer The cross-border movement of
finance caused by borrowing and the sale of assets.



What are the types of foreign investment and their %? - correct answer 1.
Direct 26%

2. Portfolio 56%

3. Financial derivatives 1%

4. Other 4%

5. Reserve Bank 13%



What is financial derivatives? - correct answer Investments that are linked to
indicators, commodity prices and "futures". Speculative in nature. Where two parties agree to buy or
sell an asset at a fixed price at that time.



What are other investments? - correct answer Movements in bank deposits
and flows of trade credits.



What is the reserve bank as a part of the types of foreign investment? - correct answer
Changes in RBA holdings of foreign currencies, accounts in different countries, gold and special drawing
rights (SDRs).



What is foreign liabilities? - correct answer Australia's foreign obligations to
the rest of the world, in the form of foreign debt or foreign equity.



What is foreign debt? - correct answer Foreign debt is the amount of money
that Australian residents owes to the rest of the world.



What is sovereign debt? - correct answer Government foreign debt owed to
the rest of the world.

, What is foreign equity? - correct answer Foreign equity is the extent to which
foreign residents own Australian assets. Gross - total assets owned by foreign residents. Net - gross
foreign equity - foreign assets



What are the costs of foreign investment? (4) - correct answer 1. Loss of
CONTROL - Foreign equity investment will result in foreign ownership of Australian physical assets that
could cause political problems & loss of control.

2. Increased VULNERABILITY in a crisis - portfolio investment (56%) is highly volatile.

3. Increased foreign debt SERVICE costs when interest rates rise.

4. Foreign investment results in speculative, unproductive PROPERTY investment.



What are the benefits of foreign investment? (8) - correct answer GIFTE

1. Increases GOVERNMENT revenue - increased employment and economic activity will increase
government revenue

2. Allows for higher levels of the size of INVESTMENT - supplements saving

3. Provides FINANCE for industry - funds higher level of capital stock = increase in supply = increase GDP

4. Encourages the transfer of new ideas and TECHNOLOGIES

5. ECONOMIES of scale - increased exports



Why is foreign investment not a problem? (5) - correct answer PAIDS

1. Majority of Australia's debt is PRIVATE debt which provide economic growth and employment.
'Consenting adults' as they are basing their decision on commercial judgement and maximising
profitability.

2. AUTOCORRECTION of CAD - When economy grows quickly, exchange rates will be higher to,
increasing debits on CAD, slow growing economy reduces CAD - positioning servicing costs as
manageable between 2%- 6% range.

3. Borrowing for INVESTMENT - productive if used to finance productive investment and develop
Australian industry not consumption. Improved infrastructure and productive capacity will assist future
generations.

4. Low DEBT RATIO by international standards - Low by international and IMF standards - borrowing
helped to sustain economic growth and exports. Strong institutions help maintain a AAA credit rating.
Debt-servicing ratio is 15%, only a problem once above 50% by the IMF. Public Debt 12% of GDP

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