Australia's financial system and economic environment Flashcards
Should a modern financial system have a currency?
Yes.
What type of payment system should a modern financial system have?
Secure payment system.
What should a modern financial system facilitate the transfer of?
Funds and financial assets between savers and borrowers.
What should a modern financial system assist investors to balance?
Risk, liquidity and returns.
Should a modern financial system be efficient?
Yes.
What are the five categories that financial service needs for a household fall into?
Spending, borrowing, insurance, savings and investment.
What are financial service providers often referred to as?
Financial intermediaries.
What are financial service providers involved in?
Transfer of funds between borrowers and savers.
What are financial service providers an essential element in?
Allocation of financial resources for productive purposes.
What are the major financial service providers in Australia?
Banks, non-bank financial institutions and insurance companies.
What are the non-bank financial institutions in Australia?
Building societies, credit unions, finance companies, fund managers and mortgage lenders
What are the major financial markets?
Debt markets, equity markets, foreign exchange
markets and the derivatives market.
What are the four phases of business cycle?
Boom, contraction, recession and recovery.
What are four areas that affect the Australian economy?
Economic growth, inflation, unemployment and interest rates.
Why do governments and private agencies use economic indicators?
To predict future economic events.
What are two major responsibilities of the RBA?
The formulation and implementation of monetary policy, and the management and stability of the Australian currency.
How does APRA monitor the exposure of banks?
Through liquidity management guidelines and capital adequacy standards.
What is the balance of payments?
It is a summary statement of all domestic economic
transactions with the rest of the world during a given year.
What are the main components of the balance of payment?
Current account, capital account and the financial account.
What is the current account?
It is a record of the actual goods and services transactions between Australia and the rest of the world.
What do changes in the current account have significant effect on?
Exchange rates.
How can changes in the current account have an effect on exchange rate?
They directly affect the demand and supply of the currencies in the exchange market and they cause changes in asset yields.
What is trade balance?
The trade balance is the difference in income between exports and imports.
What does the capital account show?
The change in the nation’s assets abroad and foreign assets in the nation.
What are terms of trade?
The relationship between the prices a country receives for its exports and the prices it pays for its imports.
What is an exchange rate?
The price of one currency in terms of another.
What is the exchange rate determined by?
Supply and demand.
What can exchange rates be?
Fixed or floating.
What is TWI?
An index of the value of the Australian dollar against a group or basket of currencies of Australia’s major trading partners.
What do the increase in the value of the Australian dollar do?
Decrease the price of imports.
Why does an increase in the Australian dollar decrease the price of imports?
Dollar will now purchase more foreign currency and therefore more goods.
Is there a link between a depreciating exchange rate and rising inflation?
Yes.
Does Australia have an aging population?
Yes.
What has happened to Australian life expectancies?
They have increased.
Does Australia have a high or low birth rate?
Low birth rate.
Do Australians have adequate retirement savings?
No.
