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Economics > Topic 5: Financial Markets > Flashcards

Topic 5: Financial Markets Flashcards

1
Q

Credit Union

A

Non-proft cooperative organisations whose members belong to a particluar trade, industry, profession or live in a particluar area. People can desposite or borrow money, with any profits restunred to memebers.

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2
Q

What are the types of finicalinstiutauons?

A
  1. Financal comapnies
  2. Investment banks
  3. Credit unions
  4. Permanenent bulding socieites
  5. Superannuation funds
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3
Q

Financal markert

A

To channel funds from people and organisations that haver savers to those who want to borrow

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4
Q

Injections = leakages

A

S+T+M = I+G+X

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5
Q

Finincal intermedairies

A

Firms recieve the accumlated funds of indivuals or firms and make loans to other firms or indivuals who can make use of them

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6
Q

Examples of fiancical intermediaries

A

Banks: westpac, commonwealth, ANZ, NAB
Stock exchange
Lattitude
Superannuation
Capitalists

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7
Q

Where do savings come from?

A

Households, firms and goverment

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8
Q

Why borrow

A

Consumers: Purchase house
Enterpreuers: Expand / build their business
Goverment: Deflict becomes borrowers

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9
Q

Surplus

A

Goverment spends more than taxation

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10
Q

Importance of finiancal markerts

A
  • Provide efficent process by which income that is not used for consumption can still contribute to aggrgate demand
  • Savings can be invested in capital which increase the productive capactiy of the economy
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11
Q

How is the finiacl markert divided?

A

Primary and secoundary

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12
Q

Primary markert

A
  • Raising of cpaital through debt or inequality by coroprations
    Securities are offered helping coropations to raise additonal capital for investment or expansion purpose
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13
Q

Secoundary markerts

A
  • Exist for the trading of exisiting secuirites that have been issued in the primary market at some time in the past
    e.g. ASX
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14
Q

Securities

A

Are any form of finical instruments, including shares that provide the holder od that instiuation with a claim over real assessts or a furture income stream

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15
Q

IPO / float

A

Initial public offering - first time a compan offers shares

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16
Q

Dividant ends

A

Money given to investors that are compnay profits

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17
Q

Housing Loan

A

Housing loans are offered by banks, these are long-term loans used to purchase property, therefore requiring periodic repayments with interest.

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18
Q

Business loan

A

Business loans are a form of debt that allows business to invest in their business operations. Rates on small-medium businesses are usually higher than housing loans and large business. This is because smaller-medium businesses are considered more of a risk.

19
Q

Short-term money loan

A

Short-term money market is distribution of debt secretaries to people and businesses experiencing temporary shortages or surpluses of funds. Theses debt securities all have a mandatory date of less than a year.

20
Q

Bond

A

Bonds are long term securities which lenders receive coupon payments from the issuing institution. At the end of the bond period lenders receive a final repayment.

21
Q

Financial futures and options

A

An option gives the buyer the right, but not the obligation, to buy (or sell) an asset at a specific price at any time during the life of the contract.

A futures contract obligates the buyer to purchase a specific asset, and the seller to sell and deliver that asset, at a specific future date.

22
Q

Foreign exchange or FOREX market

A

The market in which currencies are traded

23
Q

How has the Australian interaction with foreign financial markets increased?

A
  1. Technology advancements
  2. Reliability and lower costs to communication
24
Q

What does an equity market mean

A

This is where shares are issued and traded, it is vital to companies flow of investment and is regulated by the national governments so they exist primary within individuals

25
Q

Who regulates the global financial markets?

A
  1. International monetary fund
  2. Bank of international settlements
26
Q

What does the bank of international settlements do?

A
  • Assists banks in achieving finical stability
  • Promotes discussion between central banks
  • Counterparty to finical agreements
  • Sets standards for bank regulations
27
Q

What does the international monetary fund do?

A
  • Issues out loans under strict conditions in order to support their country
  • Assist countries with server debt problems
  • Oversees the international financial systems and stability
28
Q

What advantages of the global financial market?

A
  • Allow Australians access to foreign capital and invest in houses/business
  • Lower borrowing costs
  • Opportunity for Australians to invest and earn returns from businesses oversees
29
Q

What are the disadvantages of the global financial market?

A
  • Globalisation means that countries are connected which makes Australia vulnerable to disturbances
30
Q

What are the 4 financial regulators?

and what are they all part of?

A
  1. Reserve Bank of Australia
  2. APRA
  3. ASIC
  4. Australian Treasury

Council of Financial Regulators

31
Q

Impacts of the GFC?

A
  • A lower credit union
  • Markets became volatile, and access to new loans was restricted.
  • Share markets in the UK, Europe and Asia fell sharply
  • Westpac and St George two of Australia’s largest banks merging
  • Australia’s share market declined losing over 1/3 of its peak value
32
Q

Wallis Committee

A

Recommended significant changes to regulation to keep pace with financial sector changes, including new technologies, increase competition and the breakdown of old distinctions between different types of institutions.

33
Q

Capital gains

A

Are the profits made by investors who sell their shares or assets at a price above the level that they originally paid

34
Q

Risks associated with shares

A

Capital loss
Timing
Poor advice
Currency

35
Q

Regulators of Australian Financial markets

A

RBA
APRA
ASIC
Australian Treasury

36
Q

RBA role

A

Forecasts and sets cash rates - interest rates - inflation
Maintains employment
Encourages economic prosperity
Economic stability
Policy-making

37
Q

APRA role

A

Overseas banks, credit unions, health insurance

Supervises institutions across making, insurance, and superannuation

38
Q

ASIC role

A

Conduct regulators
Regulates companies, financial services

39
Q

Australian Treasury

A

Provide advice to the Government and implement policies and programs

Regualtes financial system

Economic analysis

40
Q

Why do individuals borrow and lend

A

BORROW: short-term (car and credit), long-term (house)

LEND: receive a return profit

41
Q

Why do businesses borrow and lend

A

BORROW: expand production, invest in research
- can be through shares or banks

LEND: during strong cash flow to return a profit

42
Q

Why do governments borrow and lend

A

BORROW: raise the level of economic activity
e.g. COVID-19

LEND: when in a surplus

43
Q

Why does the international sector lend

A

Australia has a low savings rate - a savings-investment gap

44
Q
A

Economics (9 decks)

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