2. How would you classify each of the following transactions with regard to Aust
ID: 1135005 • Letter: 2
Question
2. How would you classify each of the following transactions with regard to Australian balance- of-payments accounts? (Hint: consider the components of the balance of payments accounts) a. Payment of $100 million in welfare benefits to Australian citizens living in New Zealand b. A sale of a Picasso by a French owner to an Australian resident c. Tuition receipts of S3 billion received by Australian universities from Asian students d. Sale of a 1,000 million Eurobond issue in London by BHP Billiton. c. Investment of MYR 200 million by Harvey Norman's Malaysian subsidiary in Thailand.Explanation / Answer
Balance of payment :
it is the record of all the transactions of a country with rest of the world. It shows all payments taken place between home country and other countries.
The components of balance of payment are :
Import and export of goods
Import and export of services
Interest, dividends, profits and unilateral payments
Inflow and outflow of investment
Commercial borrowings
External assistance
Foreign exchange reserves with the country. It includes foreign currencies, special drawing rights and gold
*any inflow of payment/ capital will be included in the receipts and outflow will be included in the payments of components of BOP.
Answer:
a.Payment of $100 million in welfare benefits to Australian citizens living in new Zealand:
It will be included in the payment section of current account as it is an outflow of money from country so it will be deducted.
b. A sale of Picasso by a French owner to an Australian resident:
It will be included in the payment section of import of goods in the current account as it is a good bought by a home resident from foreigner so money will outflow from country and it will be deducted from the current account.
c.Tuition receipts of $3 billion received by Australian universities from Asian students:
It will be included in the receipt section of current account as foreign students taking the services and paying for it. It is an inflow of capital so it will be added in the account
d.Sale of a €1000 million Eurobond issue in London by BHP Billiton:
It will be included in the receipts section of foreign portfolio investment account as BHP Billiton is an Australian company and foreigner (London) has invested in their company by buying their bonds of €1000 million. It is an inflow of capital.
e. Investment of MYR 200 million by Harvey Norman’s Malaysian subsidiary in Thailand:
It will not be included in the BOP account of Australia because though Harvey Norman is an Australian company but the investment has been made by its Malaysian subsidiary in Thailand
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