q's on BOP (1 Viewer)

[Nelly_04]

Can anyone help answering these questions please:

1) Which types of Australian companies invest overseas? Why do they invest overseas?

2)Why do the current account and capital and financial account have to equal zero under a a system of floating exchange rates?

thanks

 

[i-color]

regarding your 2nd question
basiclaly under a floating exchange rate system,

Demand for AUD = Supply of AUD
Exports + K inflow + Income credts = Imports + K outflow + income debits
therefore rearranging gives
(M-X) + (Y debits - Y credits) = K inflow - K outflow
ie
CAD = KAFAS or CAS = KAFAD
therefore when bring onto one side, they equal to zero

 

[i-color]

this only occurs in a floating e/x rate because only under this system will demand for AUD = supply for AUD

 

[CaR]

this question was asked by another member recently...check it out!~* ^.~

http://www.boredofstudies.org/community/showthread.php?s=&threadid=19473