Week 7 - Topic 6 - Financial regulation Flashcards
What are the 3 main monetary authorities that regulate Australia’s financial system?
- RBA
- APRA
- ASIC
Define ‘Free Market Economics’?
where prices for goods and services are freely set by supply and demand without the influence of government policy or rules.
Define ‘Complete Regulation’?
All prices and trade are set by the government.
Define ‘Financial Regulation’?
A system of rules ensuring fair financial activity, minimum information disclosure, and stakeholder confidence to encourage broader participation in the financial system.
Fill in the following one-word gap: Both Over-regulation and Under-regulation ________ the efficient flow of funds.
INHIBIT
What does the RBA do, and what is it important?
- The RBA manages monetary policy, issues currency, oversees payments, acts as the government’s banker, and manages liquidity and treasury markets.
- It’s important in finance because it influences interest rates, affecting the cost of borrowing and banking.
Define ‘Official Cash Rate (OCR)’?
is the benchmark interest rate in Australia, set by the RBA. It’s the overnight rate at which banks lend to each other, influencing daily liquidity, about 65% of bank funding, and the overall cost of debt in the economy.
Define ‘Monetary Policy’?
Monetary policy, managed by the RBA, adjusts the money supply to boost or slow economic growth.
Fill in the following one-word gap: The Australian Dollar (AUD) is a ______ rate currency.
floating
What does ‘ADI’ stand for?
Authorised deposit-taking institutions.
What does ‘APRA’ do?
oversees the safety and stability of banks, insurers, and super funds. It sets and enforces prudential rules, monitors compliance, and advises the government on financial regulation.
Define ‘Capital Adequacy’?
Businesses aim to invest all raised capital to avoid waste and cover their cost (RRoR, WACC). Banks, however, must hold back a portion as a safety buffer to protect against losses. This regulatory cost limits investment and is often passed on to customers.
What does ‘ASIC’ do?
promotes fair, transparent markets and protects investors. Its goals are to encourage good conduct, act against misconduct, support financial innovation, and help Australians manage their finances confidently.
What is the RBA’s aim? What’s it’s relationship with inflation and the economy?
The RBA aims to keep inflation between 2 and 3%. Too much inflation signals an overheating economy, while too little indicates weakness and rising unemployment. If inflation moves outside this range, the RBA adjusts the cash rate to influence borrowing, spending, and investment.
What’s the formula to calculate the Real rate of Return?
Real rate of Return = Nominal Return - Inflation Rate
What are the 4 things included in the Initial Public Offering (IPO) costs, and what range of % does it cost?
IPO costs include underwriting, legal, marketing, and regulatory fees, totaling 6–10% of funds raised.
Define ‘Investor protection’?
Robust disclosures enhance investor confidence and protect their interests.
Define ‘Market Integrity’?
Transparency fosters fair and efficient capital markets.
