If the Australian government sells a bond to the Bank of China, how is this recorded in Australia's balance of payments?

Question

Quizplus · Accepted Answer

When the Australian government sells a bond to the Bank of China, it represents a capital inflow into Australia's financial account. This is because the Bank of China is purchasing an Australian asset, which is recorded as a credit on Australia's financial account. The balance of payments records all financial transactions between a country and the rest of the world, including investments, exports, and imports. The sale of a bond is considered a financial transaction and is recorded in the financial account. Therefore, option B is the correct answer. Option A is incorrect because the bond sale does not represent a trade transaction. Option C is incorrect because a negative entry on the financial account would indicate a capital outflow from the country. Option D is incorrect because a bond sale does not represent foreign direct investment, which involves the acquisition of a lasting interest in a foreign enterprise.

If the Australian Government Sells a Bond to the Bank