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 is considered a capital inflow into Australia's financial account. This is because the Bank of China is a foreign entity, and by purchasing a bond issued by the Australian government, it is making an investment in Australia's financial markets. This is recorded as a credit on the financial account in the balance of payments, indicating an increase in foreign investment into Australia. It is not recorded as a trade transaction, so option A is incorrect. Additionally, since this is an investment rather than a loan, it does not result in a negative entry on the financial account (option C). Finally, foreign direct investment is a specific type of investment where a foreign entity acquires a controlling stake in an Australian company, which is not the case with the purchase of a government bond, so option D is also incorrect.

If the Australian Government Sells a Bond to the Bank