Economics (Year 12)
What are Foreign Liabilities?
Foreign liabilities are the stock of domestic assets owned by overseas residents (foreign equity) and the total amount of money Australia owes to overseas residents (foreign debt).
Put it simply:
Foreign liabilities = Total Foreign Debt + Total Foreign Equity
What is Foreign Debt?
Foreign Debt is Australia's level of borrowings from overseas residents. For example, if an Australian company, such as Telstra, takes a loan from a foreign bank, such as HSBC, this would be classified as a foreign debt transaction. In other words, foreign debt is the amount of money Australians owe to other people and institutions around the world.
What is Foreign Equity?
Foreign Equity is the level of foreign ownership of domestic assets. For example, if an overseas resident purchases shares in an Australian company, such as Telstra, then the overseas resident retains an ownership stake in domestic assets and hence this is classified as foreign equity. Australians tend to have a negative attitude towards foreign equity over fears that Australia is selling too much of its domestic assets and that future generations could be pushed aside by high levels of foreign ownership. The fact is that Australians actually own more overseas equity than foreigners own of Australian equity. In the March 2021 quarter, the ABS reported that net foreign equity was -$264.2M, meaning that Australia owns an $264.2M more of overseas equity than foreigners own of domestic equity.
What are Foreign Assets?
Foreign assets are the reverse of foreign liabilities and are the value of Australian ownership of domestic assets and level of borrowings to overseas residents. Put it simply, foreign assets are simply Australia's investment abroad in terms of debt and equity.
What is Net Foreign Liabilities?
Net foreign liabilities is the value foreign liabilities minus, the value of foreign assets.
E.g. Net Foreign Liabilities = Foreign Liabilities - Foreign Assets
This shows the net position that foreigners own domestic assets less Australia's ownership of foreign assets.
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