Topic 5: Financial Markets

Question 1

Credit Union

Answer 1

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.

Question 2

What are the types of finicalinstiutauons?

Answer 2

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

Question 3

Financal markert

Answer 3

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

Question 4

Injections = leakages

Answer 4

S+T+M = I+G+X

Question 5

Finincal intermedairies

Answer 5

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

Question 6

Examples of fiancical intermediaries

Answer 6

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

Question 7

Where do savings come from?

Answer 7

Households, firms and goverment

Question 8

Why borrow

Answer 8

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

Question 9

Surplus

Answer 9

Goverment spends more than taxation

Question 10

Importance of finiancal markerts

Answer 10

• 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

Question 11

How is the finiacl markert divided?

Answer 11

Primary and secoundary

Question 12

Primary markert

Answer 12

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

Question 13

Secoundary markerts

Answer 13

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

Question 14

Securities

Answer 14

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

Question 15

IPO / float

Answer 15

Initial public offering - first time a compan offers shares

Question 16

Dividant ends

Answer 16

Money given to investors that are compnay profits

Question 17

Housing Loan

Answer 17

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

Question 18

Business loan

Answer 18

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.

Question 19

Short-term money loan

Answer 19

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.

Question 20

Bond

Answer 20

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.

Question 21

Financial futures and options

Answer 21

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.

Question 22

Foreign exchange or FOREX market

Answer 22

The market in which currencies are traded

Question 23

How has the Australian interaction with foreign financial markets increased?

Answer 23

1. Technology advancements
2. Reliability and lower costs to communication

Question 24

What does an equity market mean

Answer 24

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

Question 25

Who regulates the global financial markets?

Answer 25

1. International monetary fund 2. Bank of international settlements

Question 26

What does the bank of international settlements do?

Answer 26

- Assists banks in achieving finical stability - Promotes discussion between central banks - Counterparty to finical agreements - Sets standards for bank regulations

Question 27

What does the international monetary fund do?

Answer 27

- 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

Question 28

What advantages of the global financial market?

Answer 28

- 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

Question 29

What are the disadvantages of the global financial market?

Answer 29

- Globalisation means that countries are connected which makes Australia vulnerable to disturbances

Question 30

What are the 4 financial regulators? and what are they all part of?

Answer 30

1. Reserve Bank of Australia 2. APRA 3. ASIC 4. Australian Treasury Council of Financial Regulators

Question 31

Impacts of the GFC?

Answer 31

- 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

Question 32

Wallis Committee

Answer 32

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.

Question 33

Capital gains

Answer 33

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

Question 34

Risks associated with shares

Answer 34

Capital loss Timing Poor advice Currency

Question 35

Regulators of Australian Financial markets

Answer 35

RBA APRA ASIC Australian Treasury

Question 36

RBA role

Answer 36

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

Question 37

APRA role

Answer 37

Overseas banks, credit unions, health insurance Supervises institutions across making, insurance, and superannuation

Question 38

ASIC role

Answer 38

Conduct regulators Regulates companies, financial services

Question 39

Australian Treasury

Answer 39

Provide advice to the Government and implement policies and programs Regualtes financial system Economic analysis

Question 40

Why do individuals borrow and lend

Answer 40

BORROW: short-term (car and credit), long-term (house) LEND: receive a return profit

Question 41

Why do businesses borrow and lend

Answer 41

BORROW: expand production, invest in research - can be through shares or banks LEND: during strong cash flow to return a profit

Question 42

Why do governments borrow and lend

Answer 42

BORROW: raise the level of economic activity e.g. COVID-19 LEND: when in a surplus

Question 43

Why does the international sector lend

Answer 43

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