Help! Cad $$$ (1 Viewer)

[numg]

this question probably seems rather weird, probably due to my shocking understanding of the BOP, but; when a CAD occurs, the deficit is then balanced with a financial account surplus right? (the other thing on the BOP). the problem is that the way this is explained makes it seem as if this exchange of trade goods and finance is external to the economy and has no effect on it, almost as if the money is conjured out of thin air. Like how does it all fit into the economy? Does the financial surplus come in the form of foreign investment or something?

 

[Minai]

Well, essentially u got that part right
Current Account Deficit = Capital+Financial Account Surplus
The CFA surplus results from the fact that foreign investment into Australia is greater than investement by Australia overseas.

 

[kt san]

it's not external as it deals with exports as well as imports and all those items on the cad and capital and financial account.
it effects Australia in many ways, as well as the basic thing,
CAD is also caused be our huge foreign liabilities which are not balance by our foreign assets.
For Australia, the inflow of money cause appreciation, but such huge CAD cause lower confidence which causes depreciation

all i can answer u about htem balancing, they don't exactly equal but is balanced out in the 'error and emission' item

 

[numg]

Thanks Kt San and Minai, that helped!

i hate the error and omission part...it seems so dodgy

 

[Minai]

Originally posted by kt san
For Australia, the inflow of money cause appreciation, but such huge CAD cause lower confidence which causes depreciation

Be careful of your use of terminonlogy
appreciation/depreciation of what? the $AUD?