Question one Essay Example

Question one

Question 2

Roles of the regulatory bodies that oversee Australian financial markets

The Australian Securities and Investment Commission (ASIC) and The Reserve Bank of Australia (RBA) are the main regulators overseeing conduct via the prism of the Australian Corporations Act, 2001 (Pearson 13). ASIC enforces and administers a variety of legislative provisions regarding financial sector intermediaries, financial products, and financial markets, including insurance, investment, superannuation as well as deposit-taking activities but not lending. The aim of ASIC is protecting consumers and markets from deception, manipulation, and unfair practices. It generally promotes confidence in taking part in the financial system by both consumers and investors.

ASIC promotes fairness and honesty in company affairs as well as future markets and securities through timely and adequate disclosure of market information. ASIC monitors compliance by participants and licenses in the financial system. RBA is charge of Australian financial system stability (Pearson 21). RBA has the role mitigating financial disturbances risk having glaring system consequences and possess the backing of regulatory powers that are strong. RBA ensures the system of payment is robust and safe. RBA ensures financial stability standards are maintained through settlement facilities and licenses clearing. The Australian Prudential Regulation Authority (APRA) promotes soundness and safety in risk management and business behavior on the part of institutions it supervises. It enforces and establishes prudential practices and standards designed to ensure competitive and efficient financial system.

Question 3

    1. Use of Open Market Operations by The Reserve Bank uses to stimulate the economy

The Reserve Bank of Australia is in charge of implementing and formulating monetary policy. Open Market Operations involves either the sale or the purchase of securities by the Reserve Bank of Australia. In order to stimulate the economy the Reserve Bank buys the securities from the securities from the public and therefore provides money that can be used in investing activities and increase of consumption.

Question one

If the money supply is too much, excess consumer demand will push the aggregate demand thus raising prices and real output as well as it may result into serious inflation.

    1. .How Interest rates can stimulate an economy

This result into stimulation of the economy as many people take part in investing activities owing to the ability to borrow money from the banks. A drop in interest rates will increase consumption, net exports and investments as illustrated in the graph below.Arnold 113).The Reserve Bank of Australia lowers interest rate so as to enhance lending by commercial banks. Investors borrow money to invest owing to the interest rate and hence increasing the amount of money in circulation (

Question one 1

A liquidity trap is a situation whereby the central bank injection of cash into private banking system is unable to result into lowered interest rates and therefore does not stimulate economic growth.

Question one 2

Arnold 97).People can hoard cash expecting a gross event like deflation, war, or insufficient aggregate demand. In case of a liquidity trap monetary expansion is unable to have impact on the output or equilibrium (

Question 4

Protection of depositors’ fund by the Australian Financial Regulators through:

    1. Prudential Supervision

Financial stability is supervised and financial institutions are required to show prudence in risk management on the institutions being supervised. Pearson 19).Prudential supervision ensures safety and soundness in the behavior as well as risk management of institutions being supervised. Prudential standards are established which aim at providing competitive and efficient financial system (

    1. .The Basel Accord

The Basel Accord provides international advisory authority with regard to bank regulation. It is important for banks to operate in a sound and safe manner so as to avoid failure. Basel Committee on Bank Supervision ensures health in the banking system everywhere in the world. Basel Accords provide direction to banking system on how a healthy banking environment can be maintained (Wood 127). There are recommendations on capital adequacy among other advisory services.

Work cited

Wood, P., Regulation of International Finance, Sweet & Maxwell, London, 2007.

Arnold, Roger, A., Macroeconomics, Concise Edition, Cengage Learning: New York, 2006.

Pearson, Gail, Financial Services Law and Compliance in Australia, Cambridge: Cambridge University Press, 2009.