Question

Question 1

(a) Critically evaluate the following statement:

“All foreign borrowing will increase a nation’s net foreign debt” (4 marks)

(b) Whether a current account surplus must be offset by a financial account deficit depends on whether the nation has a fixed or flexible exchange rate regime. Explain. (4 marks)

(c) If an Australian resident buys a newly issued share of stock in the U.K. oil giant British Petroleum (BP), how will this be recorded in Australia’s balance of payments? (2 marks)