Topic 5: Financial Markets Flashcards
Credit Union
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.
What are the types of finicalinstiutauons?
- Financal comapnies
- Investment banks
- Credit unions
- Permanenent bulding socieites
- Superannuation funds
Financal markert
To channel funds from people and organisations that haver savers to those who want to borrow
Injections = leakages
S+T+M = I+G+X
Finincal intermedairies
Firms recieve the accumlated funds of indivuals or firms and make loans to other firms or indivuals who can make use of them
Examples of fiancical intermediaries
Banks: westpac, commonwealth, ANZ, NAB
Stock exchange
Lattitude
Superannuation
Capitalists
Where do savings come from?
Households, firms and goverment
Why borrow
Consumers: Purchase house
Enterpreuers: Expand / build their business
Goverment: Deflict becomes borrowers
Surplus
Goverment spends more than taxation
Importance of finiancal markerts
- 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
How is the finiacl markert divided?
Primary and secoundary
Primary markert
- Raising of cpaital through debt or inequality by coroprations
Securities are offered helping coropations to raise additonal capital for investment or expansion purpose
Secoundary markerts
- Exist for the trading of exisiting secuirites that have been issued in the primary market at some time in the past
e.g. ASX
Securities
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
IPO / float
Initial public offering - first time a compan offers shares
Dividant ends
Money given to investors that are compnay profits
Housing Loan
Housing loans are offered by banks, these are long-term loans used to purchase property, therefore requiring periodic repayments with interest.
Business loan
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.
Short-term money loan
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.
Bond
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.
Financial futures and options
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.
Foreign exchange or FOREX market
The market in which currencies are traded
How has the Australian interaction with foreign financial markets increased?
- Technology advancements
- Reliability and lower costs to communication
What does an equity market mean
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
Who regulates the global financial markets?
- International monetary fund
- Bank of international settlements
What does the bank of international settlements do?
- Assists banks in achieving finical stability
- Promotes discussion between central banks
- Counterparty to finical agreements
- Sets standards for bank regulations
What does the international monetary fund do?
- 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
What advantages of the global financial market?
- 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
What are the disadvantages of the global financial market?
- Globalisation means that countries are connected which makes Australia vulnerable to disturbances
What are the 4 financial regulators?
and what are they all part of?
- Reserve Bank of Australia
- APRA
- ASIC
- Australian Treasury
Council of Financial Regulators
Impacts of the GFC?
- 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
Wallis Committee
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.
Capital gains
Are the profits made by investors who sell their shares or assets at a price above the level that they originally paid
Risks associated with shares
Capital loss
Timing
Poor advice
Currency
Regulators of Australian Financial markets
RBA
APRA
ASIC
Australian Treasury
RBA role
Forecasts and sets cash rates - interest rates - inflation
Maintains employment
Encourages economic prosperity
Economic stability
Policy-making
APRA role
Overseas banks, credit unions, health insurance
Supervises institutions across making, insurance, and superannuation
ASIC role
Conduct regulators
Regulates companies, financial services
Australian Treasury
Provide advice to the Government and implement policies and programs
Regualtes financial system
Economic analysis
Why do individuals borrow and lend
BORROW: short-term (car and credit), long-term (house)
LEND: receive a return profit
Why do businesses borrow and lend
BORROW: expand production, invest in research
- can be through shares or banks
LEND: during strong cash flow to return a profit
Why do governments borrow and lend
BORROW: raise the level of economic activity
e.g. COVID-19
LEND: when in a surplus
Why does the international sector lend
Australia has a low savings rate - a savings-investment gap
