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Australia's Place in the Global Economy - Coggle Diagram
Australia's Place in the Global Economy
financial flows globally
1950s-1960s government control of banks and currencies
1970-1980s around the world floating of currencies and reregulation of banks
1990s-present live in a world where financial flows are determined by supply and demand
trade and financial flows
trade flows
trade patterns
1980 deregulation of financial systems
1970s opened up economy to global econ
decrease of tarrifs and quotas
more free trade and more globalisation
more trade agreements
direction of trade
1950s
UK, Europe main trading partners
1970s
japan started developing - demanded energy whilst we demanded tech and vehicles
UK joined what we now know as EU and imposed tarrifs and blocs on countries outside ie aus
1980 asian countries
2000s china = biggest trading parnter
now mainly asian regions
75% of exports from AUs to asia
composition ot trade
we have advantages in
agriculture and mining and services
main exports: iron ore, coal, natural gas, wheat, services, education/ tourism
import manufactures good or equipment for our manufacturing, vehicles, tech
main imports = vehicles, tech,
value of trade
exchange of goods and services
important for Aus - 2018 exports and imports accounted for 42% of GDP
financial flows
flow of capital, money and currencies
e.g. fdi, loans, investment, stocks
intially gov controlled fixed foreign exchnage rate (bretton woods system) but then floated it, allowed it to be market (determined through supply and demand) -
floated in 1983
1970s
deregulation of financial markets and banks meant free flow of money
banks owned and resteicted by gov were sold
1990s
greater tech allows instant transfer of info and money
1980s floated exchnage rate
as australia was deregulated they became more attractive for FDI
as Aus opened to global economy/ deregulated financial flows increased
balance of payment
record of transactions between australia and rest of the world
record trade and financial flows
BOP = CA +KAKA
KAFA
reversible
consists of
Capital Account
records transfers of non produced, non financial assests ie intellectual property rights like patens copyrights, trademarks royalties and specified oreign aid
e.g.aus company buys rights to operate subway US outlet in Aus is debit on capital account (as money outlfows from AUS)
consists of
capital transfers: (foreign aid/ debt forigvness)
net aquisition/ disposal of non produced non financiial assests (intellectual property rights, copyrights
Financial Account
consists of
direct investment
protfolio investment
purchase of shares less than 10%
financial derivatives
bonds commodities. interest rates swaps
other investments
short term loans,
Reserve Assests
foreign financial assests controlled by central authorities, RBA
shows aus transactions in foreign assets and liablities
Balance on Capital anf Financial account and NET ERRORS AND OMISSIONS
money from international borrowin lending and purchases of assets such as shares and real estate
CA
non reversible
money flow from exports and imports of goods and services, income flows and non market transfers
basically a measure of change in countries networth
consists of (GSPS)
services
primary income
income earned on investements (rent, profits interest and dividens)
measures credits (money you get from investments ie dividends) and debits (money you pay to ur investors ie their dividends)
credits - debits = net primary (typically in deficit)
secondary income
smaller sections that measures non market sources of income where theres no specific good or service supplied ie pensions, workers compensations, money sent to families
goods
measures credits (someone buys an export and aus gets money - inflow) and debits (when aus buys import and money leaves - outflow)
when credit is bigger it is surplus
balance = export - import
typically in deficit
recently tipped into surplus
links between BOP categories
deficit on CA = surplus on KAFA
total BOP = 0
usually errors therefore theres net errors and omissions taken into consideration
Surplus on CA = deficit on KAFA
when someone invests in AUS business (credit on KAFA) this results in deficit on CA as you pay them back dividends (debit on primary income)
historically AUS relies on investment and borrowing from overseas but this means deficit on CA and then borrow more money to service this debt ie its a debt trap
inflows into 1 account create outflows in the other
example
chinese investor buys small stake in aus mining company
inflow into aus: credit on KAFA (financial account under protfolio investment)
outflow from aus: debit on the CA (under primary income)
trends
terms of trade
export index divided by import index
a decrease in edpport price will cause decrease in TOT
movements in export and import prices
the relative price a contry recives for its exports and pays for its imports
is about price
typically in CA deficit but now were in surplus
because pf icnrease price and demand for our exports
cyclical
general fluctuations in economic activity
BOGS impacted by exhange rate, terms of trade, economic growth rates
structural
dramatic shifts in econmy by factors like new tech, dying industires and major development
BOGS impacted by aus narrow export base (reliant on only few exports) lack of international competivieness,
exchange rates
what are echnage rates
the price of one currency expressed in terms of another currency
indicates relative purchasing power and allows international transactions
appreciation (increase in currencies value)
when AUD appreciaties our exports become more expensive and imports are cheaper as we have more purchasing power
depreciation
exports becomme cheaper but imports cost more
exchange rate systems
fixed
pegged system: fixed against another countries currency
managed
managed by goverment and central bank policy
floating/ flexible
determined freely by market and changes in supply and demand
Trade Weighted Index
the average of foreign exhange rates weighted against the amount of trade conducted with that country
reflects a currency's strength relative to the global economy
helpful as it is relative to variety of currencies not just one
the AUD measured against a group of currencies that we trade with - each currency is weighted accorsing to their inmportance in our trade
aus main trading partner: china
RBA and exchange rates