Question

10. An Australian currency speculator believes that the New Zealand dollar will appreciate relative to the Australian dollar. Which of the following transactions on Australia's balance of payments is most likely to result? a. A credit and debit on the capital account b. A credit and debit on the current account c. A credit on the capital account and a debit on the current account d. A credit on the current account and a debit on the capital account 11. A European real estate investor buys an investment property in Melbourne. How will this transaction be recorded on Australia's balance of payments? a. A credit and debit on the capital account b. A credit and debit on the current account c. A credit on the capital account and a debit on the current account d. A credit on the current account and a debit on the capital account 12. A European real estate investor owns an investment property in Melbourne and receives rental income deposited into their bank account in Paris. How willl this transaction be recorded on Australia's balance of payments? a. A credit and debit on the capital account b. A credit and debit on the current account c. A credit on the capital account and a debit on the current account d. A credit on the current account and a debit on the capital account

Explanations

Answer 1

Question 10. It is expected that the New Zealand currency will appreciate with respect to Australian currency, that is Australian currency is depreciating with respect to New Zealand currency.

The depreciation of home currency will increase export as domestic goods are relatively cheaper for foreigners and imports by a resident of the home country will decrease as they become relatively expensive to import. The increase in exports and decrease in imports will be credited in the current account. The capital account is debited because of the higher value of asset investing abroad for the home resident in the case of appreciation of the home currency.

Therefore, Option (d) is correct and the rest all are incorrect.

Question 11. A European real estate investor buys an asset in Australia. This will lead to an inflow of foreign exchange reserve, that is, buying an asset by a foreigner in the home country will credit capital account. Thus, the increase in foreign exchange reserve will be debited in the capital account, so that BOP = 0. Therefore, the capital account is both credited and debited.

Thus, Option (a) is correct and the rest all are incorrect.

Question 12. Investing in property in the home country by a foreigner will credit the capital account. And the rental income of asset ownership in the home country is to be paid to the foreigner it will debit the current account. As net income and rental payments are recorded in the current account.

Thus, Option (c) is correct and the rest all are incorrect.