Interest payments on Australian government debt held by foreigners is a _____ in the _____ account. Group of answer choicesdebit; capitalcredit; currentdebit; currentcredit; capital
Question
Interest payments on Australian government debt held by foreigners is a _____ in the _____ account. Group of answer choicesdebit; capitalcredit; currentdebit; currentcredit; capital
Solution
Interest payments on Australian government debt held by foreigners is a debit in the current account.
Here's why:
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The Balance of Payments (BoP) is a record of all economic transactions between the residents of a country and the rest of the world. It has two main accounts: the current account and the capital account.
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The current account records transactions related to goods, services, income, and current transfers. The capital account records transactions related to capital transfers and acquisition or disposal of non-produced, non-financial assets.
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When the Australian government pays interest to foreigners, it is essentially transferring income to the rest of the world. This transaction is recorded as a debit (outflow of money) in the current account.
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Therefore, interest payments on Australian government debt held by foreigners is a debit in the current account.
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