Question

1. This question is about balance of payments. For each of the below transactions, explain whether the initial action creates an international credit or debit, whether it is recorded in the current account or the capital & financial account, and which part of that account.
   1. Chinese investor buys shares in an Australian business.
   2. Same Chinese investor receives a dividend on those Australian shares.
   3. Same Chinese investor decides to donate their profits to an Australian charity.
   4. Australian charity uses that money to buy French wine.
   5. Owner of the French winery buys Australian government bonds.
   6. Australian government buys a car from Japan.
   7. Japanese auto worker decides to go on holiday in Australia.
   8. Australian tourism operator sells 50% of their business to a Chinese investor.
   9. Reserve Bank of Australia buys US government bonds.
   10. Reserve Bank of Australia sells US government bonds.

Answer 1

a) International debit(spending money) / Capital account -Buying shares is a foreign investment
b) International credit(money received from dividents) / Current account - Dividends are a part of net income through foreign investments.
c) International debit(money donated , hence spent) / Current account - A donation is a transfer payment where no goods/services were exchanged.
d) International debit(money spent in buying a good) / Current account - French wine falls under transaction of goods in exchange for money.