Exploring Fiscal and Monetary Policy

This assignment delves into the concepts of fiscal and monetary policy. It explores two methods of implementing fiscal expansion: increasing government spending or cutting taxes, and analyzing their impact on aggregate demand. Additionally, it examines the consequences of rising interest rates by the Reserve Bank of Australia (RBA) on the Australian dollar ($AUD), particularly focusing on the effects on importers and exporters.

DFP Module 1 Assignment 1509
Diploma of Financial Planning
Module 1 Assignment
Submission Instructions:
Key steps that must be followed:
1. Please complete the Declaration of Authenticity at the bottom of this page.
2. Once you have completed all parts of the assessment and saved it (eg. to your desktop
computer), login to the Monarch Learning Management System (LMS) to submit your
assessment.
3. In the LMS, click on the file ”Submit DFP Module 1 Assignment” in the Module 1
section of your course and upload your assessment file/s by following the prompts.
4. Please be sure to click “Continue” after clicking “submit”.This ensures your assessor
receives notification – very important!
Declaration of Understanding and Authenticity*
I have read and understood the assessment instructions provided to me in the Learning Management System.
I certify that the attached material is my original work. No other person’s work hasbeen used without due
acknowledgement. I understandthat the work submitted may be reproduced and/or communicated for the purpose
of detecting plagiarism.
Student Name*: Date:
* I understand that by typing my name or inserting a digital signature into this box that I agree and am bound by the
above student declaration.
Rupinder Kaur

DFP Module 1 Assignment 1509
Important assessment information
Aims of this assessment
This assessment covers the foundations of the financial planning process. It requires completion
of a client risk profile, with a target asset allocation being assigned based on the data extracted.
General advice is contrasted to personal advice, with skill related assessments ensuring formal
procedures are followed in the advice process. These include the provision of a Financial Service
Guide (FSG), a client questionnaire being completed, as well as a risk profile, and first
appointment file note being completed. Australian Privacy Principle obligations are explored in a
client specific scenario. Managing potential client complaints is addressed, as is the Financial
Ombudsman Service (FOS), including how complaints are managed within the FOS. The need to
understand a client situation is fully explored. This includes identifying financial and non-financial
goals including allocating appropriate time frames to them. Completion of a comprehensive
budget is addressed. Based on this completed budget, advice strategies that promote a cash
surplus, including strategies to manage cash deficits (if applicable) are explored. Scaled advice and
the best interests duty is a focus. The documentary areas of financial advice are covered including
the differences between a comprehensive Statement of Advice (SOA), a Scaled Advice document,
and execution-only instructions. The Australian economy is addressed, including how it influences
investment markets within different cycles. Monetary policy and fiscal policy, among other key
economic policy areas is addressed.
Marking and feedback
This assignment contains 7 assessment activities each containing specific instructions.
This particular assessment forms part of your overall assessment for the following units of
competency:
 FNSCUS505
 FNSCUS506
 FNSFPL501
 FNSIAD501
 FNSFPL505
Grading for this assessment will be deemed “competent” or “not-yet-competent” in line with
specified educational standards under the Australian Qualifications Framework.
Units: FNSCUS505, FNSCUS506, FNSFPL501, FNSIAD501, FNSFPL505

DFP Module 1 Assignment 1509
What does “competent” mean?
These answers contain relevant and accurate information in response to the question/s with
limited serious errors in fact or application. If incorrect information is contained in an answer, it
must be fundamentally outweighed by the accurate information provided. This will be assessed
against a marking guide provided to assessors for their determination.
What does “not-yet-competent” mean?
This occurs when an assessment does not meet the marking guide standards provided to
assessors. These answers either do not address the question specifically, or are wrong from a
legislative perspective, or are incorrectly applied. Answers that omit to provide a response to any
significant issue (where multiple issues must be addressed in a question) may also be deemed
not-yet-competent. Answers that have faulty reasoning, a poor standard of expression or include
plagiarism may also be deemed not-yet-competent. Please note, additional information regarding
Monarch’s plagiarism policy is contained in the Student Information Guide which can be found
here: http://www.monarch.edu.au/student-info/
What happens if you are deemed not-yet-competent?
In the event you do not achieve competency by your assessor on this assessment, you will be
given one more opportunity to re-submit the assessment after consultation with your Trainer/
Assessor. You will know your assessment is deemed ‘not-yet-competent’ if your grade book in the
Monarch LMS says “NYC” after you have received an email from your assessor advising your
assessment has been graded.
Important: It is your responsibility to ensure your assessment resubmission addresses all areas
deemed unsatisfactory by your assessor. Please note, if you are still unsuccessful in meeting
competency after resubmitting your assessment, you will be required to repeat those units.
In the event that you have concerns about the assessment decision then you can refer to our
Complaints & Appeals process also contained within the Student Information Guide.
Expectations from your assessor when answering different types of assessment questions
Knowledge based questions:
A knowledge based question requires you to clearly identify and cover the key subject matter
areas raised in the question in full as part of the response.
Skill based questions:
Where you are asked to write as though you are speaking to a client, your answers must show
your ability to:
 understand your client’s concerns/perspective/views
Units: FNSCUS505, FNSCUS506, FNSFPL501, FNSIAD501, FNSFPL505

DFP Module 1 Assignment 1509
 show empathy
 display a professional response
 explain ideas clearly and simply so your client can understand the issues
Good luck
Finally, good luck with your learning and assessments and remember your trainers are here to
assist you 
Units: FNSCUS505, FNSCUS506, FNSFPL501, FNSIAD501, FNSFPL505

DFP Module 1 Assignment 1509
Activity instructions to candidates
 This is an open book assessment activity.
 You are required to read this assessment and answer all 3 questions that follow.
 Please type your answers in the spaces provided.
 Please ensure you have read “Important assessment information” at the front of this assessment
 Estimated time for completion of this assessment activity: 1 hour
Units: FNSCUS505, FNSCUS506, FNSFPL501, FNSIAD501, FNSFPL505
Assessment Activity 1
Simulation Exercise
Risk Profile

DFP Module 1 Assignment 1509
The following exercise will highlight how it is possible to have the same fact pattern but potentially different client
risk profiles, and hence investment recommendations. For this assessment activity to be most useful, you need to
find a family member, colleague or friend to agree to answer the risk profile questionnaire below in this ‘mock’
client scenario.
Your subject must imagine the following situation has recently occurred. They have inherited $150,000 from a
long lost relative. They wish to invest the money, and are happy to leave it invested for a minimum of 7 years
before they reassess their financial situation.
Please note, the risk profile questionnaire used in this assessment has been extracted from RBS Morgans Ltd, as
an example of some of the questions used in the financial planning industry. The full questionnaire can be
accessed at https://www.morgans.com.au/private-clients/My-client-account/~/media/8A2A5352D6DE413EA61AB2C6349C05C7.ashx
(just scroll down when the file is downloaded, the first page appears blank)
Required:
1. Complete the risk profile questionnaire (below) included in this assessment activity. Note: there is no
need for both a ‘client’ and ‘partner’ unless desired.One ‘client’ is sufficient. Because it’s a word
document, you can highlight the relevant answer (for example yellow) to indicate your mock client’s
response.
2. Add up the total pointsand match the total points to the indicative investor risk profile at the end of the
questionnaire (below). What indicative investor profile describes your client?
Type your answer in this box.
The indicative investor risk profile that is ideal for the client has been an assertive investor as the client is
ready to undertake investments that would be fundamental for long term growth and the investor is
ready sacrifice his short term profit. The client has sufficient knowledge about investment and is ready to
take short term risks.
3. Based on the completed risk profileand total points determined from questions 1 and 2, use the table
below as a guide to determine what percentage of income (cash and fixed interest) and growth (shares
and property) you would recommend.Note, do not provide a range, rather you are required to choose a
specific percentage for your recommendation. There is no ‘right’ answer in this exercise, however there
can be awrong answer if your recommended allocation of income assets or growth assets lies outside of
the range indicated in the table below.
Conservative Moderately
Conservative
Balanced Assertive Aggressive
Growth assets in portfolio 0% – 25% 10% – 30% 25% – 50% 45% – 65% 75% – 100%
Income assets in portfolio 75% – 100% 70% – 90% 50% – 75% 35% – 55% 0% – 25%
Units: FNSCUS505, FNSCUS506, FNSFPL501, FNSIAD501, FNSFPL505

DFP Module 1 Assignment 1509
Your Recommendation The investor is assertive
Growth assets in portfolio 45%-65%
Income assets in portfolio 35-55%
Risk Profile Questionnaire
Identifying your investment risk profile
1. Which of the following best describes your current stage of life?
 Single with few financial burdens. Ready to accumulate wealth for future
short term
and long term goals.
(5 points)
a) b) A couple without children. Preparing for the future by establishing a
b) home. Expecting to have or already have a high purchase rate of
c) household and consumer items.
(4 points)
c) Young family with a home. You have a mortgage and childcare costs and
maintain only small cash balances.
(3 points)
d) d) Mature family. You are in your peak earning years and your mortgage is
e) under control. You both work and you may or may not have children that
are growing up or have left home. You’re ready to start thinking about
g) your retirement years.
(5 points)
e) Preparing for retirement. You own your home and have few financial
burdens; you want to ensure you can afford a comfortable retirement.
(2 points)
(5 f) Retired. You rely on existing funds and investments to maintain your
(6 lifestyle in retirement. You may already be receiving a Government
(7 pension and/or Superannuation pension.
(1 point)
2. How familiar are you with investment matters?
a) Not familiar at all with investments and feel uncomfortable with the
complexity.
(0 points)
b) Not very familiar when it comes to investments. (1 point)
c) Somewhat familiar. I don’t fully understand investments, including the
share market.
(2 points)
d) Fairly familiar. I understand the various factors which influence
investment
 performance.
(3 points)
e) Very familiar. I use research and other investment information to make
investment decisions. I understand the various factors which influence
investment performance.
(7 points)
Units: FNSCUS505, FNSCUS506, FNSFPL501, FNSIAD501, FNSFPL505

DFP Module 1 Assignment 1509
3. How long have you been investing, not counting your own home or bank type deposits?
a) 3 years or more. (5 points)
 Up to 3 years. (2 points)
c) This is my/our first investment. (1 point)
4. How long would you invest the majority of your money before you think you would need
access to it? (Assuming you already have plans in place to meet short term cash flow and/or
emergencies).
a) In 2 years or less. (1 point)
b) Within 3 – 5 years. (3 points)
c) Within 6 – 10 years. (7 points)
 Not for 10+ years. (10 points)
5. Once you start using your invested money how long would you need it to last?
a) Over a period of 2 years or less. (0 points)
b) Over a period of 3 – 5 years. (1 point)
c) Over a period of 6 – 10 years. (3 points)
 More than10 years/Retirement. (5 points)
6. In October 1987, the Australian share market fell more than 40% during the month. If the
share component of your portfolio fell by 40% over a short period, such as a month, would you:
Sell all of the investments. You do not intend to take risks. (1 point)
 Sell a portion of your portfolio to cut your losses and reinvest into
more secure investment sectors.
(3 points)
Hold the investment and sell nothing, expecting performance to
improve.
(5 points)
Invest more funds to lower your average investment price. (7 points)
(If you have experienced a fall like this, choose the answer that corresponds to your actual behaviour.)
7. If your investments fell by more than 6% over a short period, would you:
Units: FNSCUS505, FNSCUS506, FNSFPL501, FNSIAD501, FNSFPL505

DFP Module 1 Assignment 1509
Sell all of the remaining investment. (1 point)
Sell a portion of the remaining investment. (3 points)
 Hold your investments and sell nothing. (5 points)
Invest more funds. You can tolerate short term losses in expectation of
future growth.
(6 points)
(If your portfolio has experienced a drop like this, choose the answer that corresponds to your actual
behaviour.)
8. The table below shows the highest one-year gain and highest one-year loss on three different hypothetical
investments of $10,000. Given the potential gain or loss in any one year, where would you invest your
money?
Fund A (1 point) Fund A B C
 Fund B (3 points) Highest Gain $593 $1,921 $4,229
Fund C (5 points) Highest Loss -$164 -$1,020 -$3,639
9. Which one of the following statements describes your feelings towards choosing an investment?
v a) I would prefer investments with little or no fluctuation in value and have
a low degree of risk associated with them. I am willing to accept the lower
return associated with these investments.
b) I prefer to diversify with a mix of investments that have an emphasis on
low risk. I am happy to have a small proportion of the portfolio invested
in assets that have a higher degree of risk in order to achieve a slightly
higher return. I am prepared to accept a negative investment return of 1
in 10 years.
c) I prefer to have a spread of investments in a balanced portfolio. I am
happy to have a negative return of 1 in 7 years.
 I prefer to diversify my investments with an emphasis on more
investments that have higher returns, but still having a small amount
of low risk investments. I am prepared to accept a negative return of
1 in 5 years.
e) I would only select investments that have a higher degree of investment
price fluctuation so that I can earn higher long term returns. I am happy
to accept a negative return of 1 in 3 years in order to achieve this goal.
(1 point)
(2 points)
(4 points)
(7 points)
(12 points)
10. How secure is your current and future income from sources such as salary, pensions or other investments?
a) Not secure. (2 points)
Units: FNSCUS505, FNSCUS506, FNSFPL501, FNSIAD501, FNSFPL505

DFP Module 1 Assignment 1509
b) Somewhat secure. (3 points)
 Fairly secure.

d) Very secure
(4 points)
(5 points)
Units: FNSCUS505, FNSCUS506, FNSFPL501, FNSIAD501, FNSFPL505

DFP Module 1 Assignment 1509
Additional questions
Apart from your home, have you ever borrowed money to make an investment?
a) Yes (% of your total assets)
 No
Would you consider borrowing money to make an investment?
a) Yes
 b) No
If Yes, what is the maximum level of borrowing (gearing) you are prepared to
accept as a percentage of your net assets (your equity)? %
Your score
Add up the points you scored for each answer. Based on the total points, you can compare your score
with the range of Profiles described below.
Total Points: 47 Client Partner
Indicative Investor
Risk Profile
Score Description
Conservative 0 - 18 points You are a conservative investor who does not wish to take any
investment risk. Your priorities are the safeguarding of your
investment capital. You are prepared to sacrifice higher returns
for peace of mind.
Moderately
Conservative
19 - 25 points You are a moderately conservative investor who is prepared to
accept a small amount of risk. Your priority remains the
preservation of capital over the medium to long term. You may
have some understanding of investment markets, however you
cannot afford to take any chances with your capital.
Balanced 26 - 44 points You are a balanced investor with some understanding of
investment market behaviour and can accept some short term
risk to your capital. You do not wish to see all of your capital
eroded by tax and inflation and are prepared to take a small
Units: FNSCUS505, FNSCUS506, FNSFPL501, FNSIAD501, FNSFPL505

DFP Module 1 Assignment 1509
short term risk in order to gain longer term capital growth.
Assertive 45 - 55 points You are an assertive investor who understands the movement of
investment markets. You are most interested in maximising long
term capital growth, although you do not wish to make
unbalanced investment decisions. You are happy to sacrifice
short term safety in order to maximise long term capital growth.
Aggressive 56+ points You are an aggressive investor. You are prepared to sacrifice
your investment capital in pursuit of the highest long term
capital growth investment. You are most interested in reducing
your taxable income and have an understanding of the
behaviour of investment markets.
Activity instructions to candidates
 This is an open book assessment activity.
 You are required to read this assessment and answer all 5 questions that follow.
 Please type your answers in the spaces provided.
 Please ensure you have read “Important assessment information” at the front of this assessment
 Estimated time for completion of this assessment activity: 1 hour
Units: FNSCUS505, FNSCUS506, FNSFPL501, FNSIAD501, FNSFPL505
Assessment Activity 2
Simulation Exercise
Regulations & Legislation

DFP Module 1 Assignment 1509
Background
At a Sunday barbeque, you are introduced to a group of people you don’t know (by your friend who is the
host) as “one of the best financial adviser’s going around”. Being ever so humble, you tell your friend that you
are as fallible as the next adviser. Later in the afternoon, one of the guests, Valerie, corners you whilst you are
eyeing off the desert. She tells you that she is really unhappy with her adviser, and looking around for a
different adviser. She then proceeds to ‘test’ you by asking your opinion on certain listed mining companies
she owns. She has indicated she is unhappy because she has lost a significant amount of money recently on
these shares. Valerie also asks your view of the share market’s likely performance over the coming months.
(a) Explain the difference between general advice and personal advice.
General advice is advice that is not personal advice.it may be generic information or advice that is not specifically tailored
To suit a particular client.General advice does not take into account your particular circumstances, such as the
Objectives,financial situation and needs. For example, if an adviser provides information about a product that might be,
suitable for you but does not take into account the overall financial goals or actually recommend to take up the
product, it is general advice.
On the other hand, personal advice is given where personal situation taken into account.it will be given in circumstances
where
1)provider of advice has considered one or more of the person’s objectives
2)reasonable person might expect the provider to have considered one or more of those matters
(b) Is it likely you would be in a position to provide personal advice to Valerie at the BBQ? Explain why or
why not.
At BBQ its
As Valerie met at BBQ, can provide personal advice verbally, but will not be able to provide complete advice as
scope of Information is limited. Also, she is taking advice from other party as well.so can suggest her some
option but Until know complete picture of her situation cannot provide exact advice.
Units: FNSCUS505, FNSCUS506, FNSFPL501, FNSIAD501, FNSFPL505

DFP Module 1 Assignment 1509
(c) What type of advice does s949A of the Corporations Act pertainto – personal or general advice?
The s949A of the Corporations Act 2001 (Corporations Act pertain to general advice. This relief will reduce
unnecessary repetition of the general advice warning when oral general advice is regularly given to a retail client
(d) What “general warning should you provide to Valerie before addressing her questions as per s949A of
the Corporations Act? Write it as though you were speaking to her. For example, “Valerie, you must
understand……”
Valerie, you must understand that there are exists general warning that needs to be taken into
consideration and the reminder would be dependent on the abbreviated advertising warning in reg
7.7.02(5A) (d) for posters, billboard and media advertising and it is essential for me to ensure that the
advice is general in nature and you should consider whether the advice is suitable for them.
(e) If Valerie comes to your office for advice, what document would you need to give Valerie under s 941B
of the Corporations Act, at the first opportunity, and definitely prior to issuing personal advice?
Prior to issue personal advice would like to give her financial service guide(FSG) under obligation of 941B of the
corporation Act.
Units: FNSCUS505, FNSCUS506, FNSFPL501, FNSIAD501, FNSFPL505
Assessment Activity 3
Case Study
Ethics, Regulations & Legislation

DFP Module 1 Assignment 1509
Activity instructions to candidates
 This is an open book assessment activity.
 You are required to read this assessment and answer all 11 questions that follow.
 Please type your answers in the spaces provided.
 Please ensure you have read “Important assessment information” at the front of this assessment
 Estimated time for completion of this assessment activity: 3 hours
Units: FNSCUS505, FNSCUS506, FNSFPL501, FNSIAD501, FNSFPL505

DFP Module 1 Assignment 1509
BackgroundScenario 1
Jim and Kostas are both colleagues at Brite White Teeth Cleaning Products Corporation, a medium size
company to which you provide corporate superannuation advice. You have run a successful seminar for
employees of Brite White Teeth Cleaning about the benefits of salary sacrificing part of their income into
superannuation. Both Jim and Kostas expressed interest in seeking advice on personal financial planning
matters with your office, and you have already successfully seen Kostas. You are in the process of completing a
Statement of Advice (SOA) for Kostas and will be presenting the SOA to him and his wife later in the month.
Jim comes to see you at your office, and tells you Kostas has told him how satisfied and relieved he is that he
sought your advice. Jim tells you that he is very good friends with Kostas and they have worked together for 8
years. After going through your FSG and explaining the different levels of service you can provide, you start to
gather information via the client questionnaire from Jim including his current financial situation, goals and
objectives.
Required:
(a) When you ask Jim how much salary he earns, he says, “It’s the same as Kostas’s salary right?” Under
Australian Privacy Principles (APP 1, 3, 5 and 6) what obligation do you have when dealing with this
question?
With respect to the Australian Privacy Principles it is essential to maintain and manage the personal
information in an open and transparent manner. It is essential to take steps that are reasonable to the
incorporation of the procedures and the practices so that the information that is collected is true and as in
compliance with the Australian Privacy Principles. The individual has to disclose their true identity and
disclose their real information when meeting a consultant for the preparation of the statement of advice.
The consultant has to oblige with the Australian Privacy Principles and has to record and maintain the
personal information collected from client in safe place so that these personal information does not get
leaked in the market. It is the primary duty of the consultant to safeguard the personal information and in
that manner maintain a secrecy. In this scenario, Jim has to answer his actual salary as the consultant is
obligated to maintain the personal information of Kostas to be secret and therefore cannot use that figure
for the construction of the statement of advice for Jim.
(b) Explain your obligation to Kostas when addressing Jim’s question in part (a). Answer it as though you are
speaking to Jim. For example, “Jim, you must understand that….”
Jim you must understand that according to the Australian Privacy Principles, one is not allowed to
disclose the personal information of other clients. It is essential to safeguard the information and to
maintain secrecy of the information. The disclosure of the information would hamper the reputation
of the company and the consultant and this can lead to penalty and loss of reputation. Therefore, it is
seen that Jim you have to reveal your own information so that effective measures can be taken so that
efficient construction of the statement of advice can be constructed.
Units: FNSCUS505, FNSCUS506, FNSFPL501, FNSIAD501, FNSFPL505

DFP Module 1 Assignment 1509
Background Scenario 2
After presenting Kostas’s SOA later in the month, he signs the authority to proceed for you to transfer an
investment he currently has in a conservative managed fund that has not been performing well. He is very
impressed with your recommendation to invest this money in a high performing balanced growth fund
incorporating 70% shares and 30% cash and fixed interest.
You send a redemption form to his existing fund manager, and are told they will send your office a cheque
made out to the recommended new fund manager as per Kosta’s instructions. It will take approximately 1
week. You however, are leaving on a 4 week holiday in only 5 days’ time and you haven’t made
arrangements for your mail to be attended to while you are away. Your paraplanner does not open the
mail addressed to you, and you find the redemption details sitting in your office 4 weeks later unopened
with the cheque inside. To make matters worse, the share market has performed exceptionally well over
the previous 4 weeks, rising 8.5 per cent in the month.
(c) After Kostas finds out, he comes to your office and screams, “…you are damn hopeless!” In order to
remain professional in your response, how might you deal with his verbal outburst? Provide your
response to Kostas as though you are speaking to him. For example, “Kostas, I can understand…….”
Kostas, I can understand that you are angry as there has been a significant rise of 8.5% in the market,
there is nothing for you to get so stressed as the market is would be experiencing such growth for a
certain period of time and it has been a blessing in disguise as investing in the initial period may lead
to risk as the market being a volatile one may experience risk at certain point of time. However,
analysing the market for a certain period time and then investing would lead to effective returns and
in that manner would improve the financial condition of the investor. You need to stay calm and
composed and trust me so that I could provide you with effective investment options. This would
result to the development of effective investments and returns out of the same for Kostas.
(d) If Kostas provides a formal complaint to your office about your lack of diligence, what obligations do you
have to deal with the complaint and what steps could you take to resolve the complaint internally?
Units: FNSCUS505, FNSCUS506, FNSFPL501, FNSIAD501, FNSFPL505

DFP Module 1 Assignment 1509
The steps that would be taken into consideration for the handling of the complaint internally
are as follows:
1. Listen and understand: It is essential to listen to the customers. They are concerned about
the component of their services. Letting go of the temptation in order to respond in a
quick manner.
2. Empathize: After listening to the issues of the customers they immediately empathize with
their position to establish a bond between the consultant and the customer so that they
know that their concern are heard and their concerns could be resolved.
3. Offer a solution: A solution is offered to the problem of the client. In this aspect, they
concentrate on what can be done with respect to the one that cannot be done. There has
been always a solution. It may not be solution that the client may be seeking for but fi
concentrated what can be done versus denying them their requested remedy they have
been offered with a solution and often merely having an alternative is adequate to rectify
the situation.
4. Execute the Solution: It is essential to rectify their problem with respect to their original
requested resolution or a substitute that have been proposed by the company.
5. Follow-Up: After going through the first four steps, it is essential to ensure to follow-up
with them to ensure that they are satisfied with the answer and that has to be taken care
of their concern.
Background Scenario 3
The Financial Ombudsman Service (FOS) is an approved external dispute resolution scheme approved by
ASIC. Go to www.fos.org.au for more information. Now, in your course materials refer to Appendix 19
titled “The FOS Approach” - calculating loss in financial advice disputes, and read the document.
Required
(e) Outline the purpose of compensation, where inappropriate financial advice is provided under the FOS
approach?
The intention of compensation where there has been a breach of duty (that is inclusive of the deceptive
and misleading conduct) is to place the Applicant in the position they would have been in if there had
been breach of duty. The loss is thus computed by comparing the position of the applicant after
suffering the breach of duty with the position of the applicant if the breach had taken place with respect
to the compensation cap.
Where there has been a breach of contract, the aim of the compensation is to place the applicant in
similar position they would have been in if the contract had taken place. The loss will generally be the
difference between the position of the applicant following the breach of contract and the position the
Units: FNSCUS505, FNSCUS506, FNSFPL501, FNSIAD501, FNSFPL505

DFP Module 1 Assignment 1509
applicant would have been in had the contract been performed with respect to the compensation cap.
(f) Outline how FOS determines the appropriate amount of compensation for a client.
The scheme of the compensation limits that has been determined by the FOS for the client can be
explained as follows:
90% of the first $120,000
Plus 70% of the next $80,000
Plus 50% of the next $109,000
The maximum possible compensation that is applicable is $218,500.
(g) Outline the definition of inappropriate financial advice according to FOS
The definition of inappropriate financial advice is ascertained by the courts. These financial advices are
associated to the the appropriateness or the completeness of the advice provided 57% of the cases and
in specific the failure to disclose the information precise to the client decision or the remuneration
advantages and the conflicts of interest which is 20%. The insufficient explanation of the investment
risks or the financial products that has been taken as 15%. The advice which did not meet the objectives
of the client or the situations and had no reasonable basis around 12%. The insufficient understanding
of the financial product is advisable that is 10%. The inadequate written advice or the tailoring of the
advice to the client comprising of 9%. The statements that are misleading inclusive of the performance,
features of the products and even the riskiness that is under 15%. The use of the fund of the clients for
their own purposes (13%). The failure to meet the licensee compliance procedures that is 6%.
(h) What is the maximum amount FOS can award consumers per claim for a direct financial loss?
The maximum amount of sum the FOS can award the consumer’s per claim for a direct loss has been to
be $309,000 per claim.
(i) What is the maximum amount FOS can award consumers per claim for an indirect financial loss?
The maximum amount of sum the FOS can award the consumer’s per claim for an indirect loss has been
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DFP Module 1 Assignment 1509
to be $3,000 per claim.
(j) In light of Kostas situation, whereby a break down has occurred in procedures within your office, could
Kostas lodge a claim with FOS?
With respect to the situation that has been faced by Kostas that has occurred due to the breakdown of
the procedures, it is seen that Kostas can claim for the discrepancies that have taken place from FOS.
(k) Explain why FOS would likely view the loss as an indirect loss?
The FOS would look to view the loss faced by Kostas as an indirect loss as it is known that FOS considers
indirect losses in case there has been an unusual amount of physical inconvenience, the time taken to
resolve the situation or the interference with the expectation of enjoyment or peace of mind of the
applicant. With respect to this scenario, it is seen that Kostas has experienced a loss of return as the
consultant was out of station and therefore investments were not made even though the market has
been experiencing a growth of 8.5%. Therefore, FOS has viewed it has an indirect loss.
Units: FNSCUS505, FNSCUS506, FNSFPL501, FNSIAD501, FNSFPL505

DFP Module 1 Assignment 1509
Assessment Activity 4
Simulation Exercise & Written Questions
Budget Excel Spreadsheet
Activity instructions to candidates
 This is an open book assessment activity.
 You are required to read this assessment and answer all 3 questions that follow.
 Please type your answers in the spaces provided.
 Please ensure you have read “Important assessment information” at the front of this assessment
 Estimated time for completion of this assessment activity: 2-3 hours
Please attach BOTH your Budget Excel Spreadsheet AND your Assignment 1 in the
"Submit DFP Module 1 Assignment" link in the LMS.
Units: FNSCUS505, FNSCUS506, FNSFPL501, FNSIAD501, FNSFPL505

DFP Module 1 Assignment 1509
Background
Achieving financial goals requires discipline. The best financial plan (written by you) is only as good as the
commitment of those clients for whom it has been written. A common challenge for clients wishing to
commence a regular savings plan earmarked for anything from a deposit on a first home, a renovation,
children’s education or family holiday is effective money control (i.e. Budgeting).
Budgeting is a very effective tool you can use with your clients. It allows both you and the client to identify
where their money is going, and what adjustments may need to be made to achieve a financial goal.
Below is a question that requires you to first complete your own budget. Have you heard of the plumber with
a leaky tap? Well, if you haven’t filled out a budget for yourself, it is difficult to understand with any real
sincerity the challenges your clients face in doing the same. Committing to a plan and achieving it is something
that can be personally satisfying and your clients will likely extend their gratitude.
Task One – simulation exercise
Required
 For this simulation exercise, you are required to download a budget planner from the ASIC website
https://www.moneysmart.gov.au/tools-and-resources/calculators-and-tools/budget-planner
 Please select the excel version of the budget planner(this option is located at the 3rd dot point at the
top of the Budget Planner screen page).
 You are required to use the ASIC budget planner to complete either your own, a family member, a
friend or a colleague’s budget or you can use fictional figures.
 Ideally your client (even if it is you) will use a combination of financial statements, bills and receipts to
track financial expenditure. If this information cannot be accessed easily, just allow for an estimate.
 Enter amounts for all the tabs (where relevant) - Income, Financial commitments, Home/utilities,
Education/health, Shopping/transport, Entertainment/eating out.
 Select the Results tab and save your budget summary to your desktop. When you have completed all
the assessment activities in this assignment, you can submit a copy of the budget summary along with
this assignment for grading. (The instructions for submitting your assignment are on page 1 of your
assignment.)
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DFP Module 1 Assignment 1509
Task Two – written knowledge questions
Answer the following questions and type your answers in the spaces provided:
a) Which area of your spending breakdown was the largest? …The spending breakdown was the
highest in the income of the person. ………………………………………..
b) Which area of your spending breakdown was the smallest? …The smallest spending of the
breakdown has been in the entertainment and eats out. ………………………………………..
c) What was the main reason or reasons for the cash surplus or the cash shortfall?
The main reason for the surplus of cash has been due to the higher level of return that has been attained from
the income of the savings and investment and the benefits received from Centrelink. The excess level of returns
from the investment has been influential for the rise in surplus of cash.
d) Provide 3 recommendations to rectify a deficit, or to save even more funds if a surplus exists?
The three recommendations that would be provided are as follows:
1. Reducing the level of expenses for home and utilities would would be useful for the saving of additional
fund.
2. Taking additional initiative so that additional investments can be taken with the help of which surplus
savings can be undertaken.
3. The person should look to undertake overtime so that they would receive bonus.
e) When completing a budget, funds are often withdrawn in cash. Both the party completing the budget (…
and the adviser) often find it difficult to track expenditure when this is the case, because there is no
reference point such as a financial statement. A financial statement is useful because it indicates the
place of purchase and exact amount paid.
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DFP Module 1 Assignment 1509
Recommend one way of achieving a more accurate budget going forward if cash expenditure is not
being tracked properly?
The process of budgeting has made us take a hard look at ourselves and the level of shortcomings also generating
a budget can completely changing their financial destiny but there are a variety of reasons why the budget might
not be working. Here are the certain explanations and reasons:
1. By underestimating their expenses
2. The expenses are too high
3. They aren’t budgeting for everything.
4. They do not have an emergency fund.
The most significant part is that they have not been keeping track of their expenses. They can restrict their budget
by keeping an ongoing list of the spending in whatever category they would find budgeting. In that manner, one
can check in at any time to see where they are at.
Task Three – written skillsquestions
How would you communicate the following budget issues to a client who may be seeking your advice?
Note: provide your answer as though you are speaking to the client For example. “Jim, have you ever
considered the possibility that…..”
a) Your client Sarah tells you she is confident she can save $1,000 per month into an investment she is
interested in. She wants you to advise and implement, on her behalf this investment. However she
hasn’t been able to achieve this savings target to date.
What might you say to Sarah about the benefits of committing to a budget, given the background
knowledge you have about her, and the advice she is seeking from you?
Sarah it is essential to understand that one has to save a certain amount of money in order to use the money
for the purpose of investment. You have to undertake budgeting in order to save $1000 for the purpose of
investment and it can be understood by gaining knowledge about the benefits of staying committed to a
budget. The benefits have been given below:
1. Gives you control over the money: The process of budget is a process of being intentional about the
process one needs to save and spend their money. It has been observed that budgeting is helpful for
controlling the money and in that manner saves the stress of suddenly having to adjust the lack of
funds as there was no initial plan of spending the money effectively.
2. Makes you aware what is going on with the money: With budgeting, one can have a clear idea about
what amount of money is coming in and the rate at which the money is going out. The process of
being committed to the budget saves from wondering where the money has gone every month. The
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DFP Module 1 Assignment 1509
budget enables you to understand the amount one can afford and take advantage of the purchasing
and investing benefits and construct how to reduce the debt. it even explains what has been vital for
you with respect to allocating their funds and how the money is functioning and the level to which one
can reach their financial goals.
3. Helps in organizing the savings and spending: This is done by dividing the money into the segments of
the savings and expenditure and in that manner keeping a certain amount of money that would be
useful for the purpose of future use and investment.
4. Keeps you concentrated on the monetary goals: The construction of the budget is helpful for making
the client focus on their goals and in that manner help in developing actions that would help in the
development of the future money.
5. Helps in the production of additional money: The construction of the budget is helpful for the
eliminating expenses like the penalties, fees and interests.
6. Helps in detecting the potential problems: The commitment towards budget helps in discovering the
potential future risks that would take place for the client and in that manner help in talking steps that
would mitigate the problems.
b) Your client Mathew is considering renovating a kitchen and bathroom and consequently taking on a
significantly larger mortgage from $350,000 to $450,000. Mathew earns a very good income ($120,000
per annum plus super). However, Mathew seeks your advice, unsure whether he will be able to
manage financially with this higher debt burden. Mathew asks you what your financial
recommendation is when he comes to see you – “can I afford it” and “will it affect my long term
financial plan” he asks you?
Importantly, he has not attended the meeting with completed budget details despite the fact you sent
him out a budget template via email in an excel format prior to the meeting. At the meeting, you quiz
him about his budget, but he provides you with vague answers about his family expenditure.
As an adviser, list 3 risks you or Mathew might face if you advise Mathew to take on more debt, in the
absence of an accurate budget picture?
1. Budget overrun
2. Goal would not be achieved within the allotted timeframe
3. Most likely unsuitable financial advice will be given (inappropriate advice is financial advice that is
unsuitable for the financial needs, objectives and the financial situation of the consumer).
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DFP Module 1 Assignment 1509
Units: FNSCUS505, FNSCUS506, FNSFPL501, FNSIAD501, FNSFPL505

DFP Module 1 Assignment 1509
Activity instructions to candidates
 This is an open book assessment activity.
 You are required to read this assessment and answer both questions that follow.
 Please type your answers in the spaces provided.
 Please ensure you have read “Important assessment information” at the front of this assessment
 Estimated time for completion of this assessment activity: 15 minutes
Units: FNSCUS505, FNSCUS506, FNSFPL501, FNSIAD501, FNSFPL505
Assessment Activity 5
Case Study
Goal Setting

DFP Module 1 Assignment 1509
Question 1
The phrase ‘financial freedom’ means different things to different people. Why is this notion not the same for
all people?
The word financial freedom is not the same for all the people due to the fact that every people have their own financial
plan and they have the ideology and therefore they seek to undertake investments according to their own objectives. It is
seen that financial planning permits individuals to be free financially as they each have their decision of how they wish to
lead their lives. Therefore it is seen that financial freedom is different for different people.
Question 2
BackgroundScenario
Your clients Barbara and Thomas are a couple in their mid-thirties. They have two children aged 5 years
and 7 years. At your initial meeting with Barbara and Thomas you were able to determine their risk
profile and also some of their financial goals and objectives. The goals and objectives they raised
included:
 Ability to pay for private school fees when their children were in high school
 Mortgage on their home to be fully paid when they retire at age 60
 Requirement to have net income in retirement of $65,000 p.a.
 Desire to take the children to Disneyland in the U.S.A. in 5 years’ time.
 Renovation of their kitchen in the next 18 months at a cost of $12,000
 Desire to address their estate planning needs
 Consideration of income protection, TPD and trauma insurance for both Barbara and Thomas
Identify which of the goals and objectives would be considered short-term, medium-term and long-term
goals/objectives
Short-term goals
The short-term goal includes:
1. Renovation of their kitchen in the next 18 months at a cost of $12,000
2. Consideration of income protection and, TPD, trauma insurance for both Thomas and Barbara
Medium-term goals
The medium term goals includes:
1. Desire to take their children to Disneyland in USA within 5 years’ time.
2. Desire to address their estate planning needs.
3. Ability to pay for private school fees when their children were in high school
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DFP Module 1 Assignment 1509
Long-term goals
The long term goals are:
1. Mortgage on their home to be fully paid when they retire at age 60
2. Requirement to have net income in retirement of $65,000 p.a.
Question 3
Explain why you categorised the “Desire to address the estate planning needs” as you have in question 2
The desire to address the estate planning needs as the medium term goal as it is seen that the couple needs to
plan their estate planning before they retire and as they are still quite young they would be needing to attain
this goal in order to construct an effective estate planning with respect to which they can have their state
planned before they would retire. Therefore, this has been taken as a medium term goal as it needs to be
fulfilled within 5 to 10 years.
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DFP Module 1 Assignment 1509
Activity instructions to candidates
 This is an open book assessment activity.
 You are required to read this assessment and answer all 4 questions that follow.
 Please type your answers in the spaces provided.
 Please ensure you have read “Important assessment information” at the front of this assessment
 Estimated time for completion of this assessment activity: 2 hours
Units: FNSCUS505, FNSCUS506, FNSFPL501, FNSIAD501, FNSFPL505
Assessment Activity 6
Simulation Exercise
Client administration

DFP Module 1 Assignment 1509
Background Scenario
A married couple, Rachel and Harry come to see you for a first appointment. They have not seen a financial
adviser before. You have spent about 10 minutes building rapport with these new clients. You wish move to
the point where you would like to discuss their financial planning requirements.
Question 1
Explain the key information contained in the FSG that you are required to convey to Rachel and Harry prior to
entering into any financial planning discussions?
The key information contained in FSG that is required to be conveyed to Harry and Rachel before entering into any
financial planning discussions include:
 The responsibilities and the obligations of each party.
 Any compensation that may be associated to the agreement of the client.
 The terms under which the proprietary products may be offered
 Any factors that ascertain costs
 The terms under which other entities will be used to meet any services outlined in the agreement.
Question 2
The meeting with Rachel and Harry progresses well, and you complete the client questionnaire and client risk
profile with them, which provides the following information to you;
Rachel is age 34and earns a gross salary of $85,000 and Harry is age 38 earning a gross salary of $69,000.
They have a 4 year old boy (Mitchell) and Rachel is pregnant with their second child due in 4 months. Income
from other sources total $5,400 p.a. They are planning to purchase a housein the next two years, and have
located two suburbs they like. They have a budget of $450,000 for their first home, and are actively searching
and inspecting homes in their suburbs of interest.
Their current assets are: Bank account (savings) 85,000
Term deposit (due in 6 months) 30,000
Contents/Personal effects 55,000
Cars 24,000
Superannuation - Harry 18,000
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DFP Module 1 Assignment 1509
Superannuation - Rachel 20,000
Their liabilities are: Credit cards 6,000
Car loans 13,000
Their monthly commitments are:
Rent 1,800
Credit cards 150
Car loans 350
They estimate their current rate of total household expenses to be $2,000 per month (excluding the
monthly commitments stated above).
IMPORTANT: Rachel and Harry only want advice for the following;
They feel they could be doing more with their money in their bank account and term deposit prior to buying a
house to maximise how much they will have when they eventually do buy.
You give the advice they sought with respect to their investment options. Tragically 5 months later, Harry is
involved in a freak skiing accident and becomes a quadriplegic. He had no insurance. Rachel’s brother (a
lawyer) suggests you as a financial adviser had an obligation to advise Rachel and Harry about taking out
appropriate insurance including income protection and total and permanent disability insurance.
Required
a. Explain what scaled advice is.
Scaled advice is specifically an advice provided on a single issue or on a restricted range of issues.Scaled advice is
unavoidable in many circumstances, despite the potential risk to both adviser and the client.
b. What key principle under ASIC Regulatory Guide 175 must you adhere to when providing scaled
advice?
ASIC has provided guidance on the scaled advice provision. In the Regulatory Guide 175 Licencing : the Financial product
advisers-Conduct and disclosure (RG 175), it has been explained that :
One process in which the ASIC can help the financial advice sector to raise the access to the good and effective quality
advice in order to explain how the requirements of the best interest duty can be scaled up or down, depending on various
factors. This explains that complying with the effective and best interest duty and the associated obligations remains
equally precise for the persons who are giving or are considering of providing, “scaled advice”.
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DFP Module 1 Assignment 1509
Gaining the suitable procedures in place to guide the client when they are given scaled advice would help the client
comply with the law that is inclusive of the best interest duty and the associated obligations.
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DFP Module 1 Assignment 1509
Question 3
Assume Harry’s skiing accident does not occur. Rachel and Harry complete the risk profile, and their score
categorises them as “aggressive”.Rachel has read about a managed fund called the Maximus Rominus High
Performance Share Fund. She brings in the PDS to the first appointment to seek your opinion. It has produced
returns of 18% in the previous 12 months, substantially better than Rachel and Harry’s cash investments. You
explain to them that investing in shares requires a time frame longer than 1-2 years, and that the Maximus
Rominus High Performance Share Fund won’t meet their needs given their requirement to access their money
to use as a house deposit in the near term.
Being ever so cynical, assume Rachel and Harry turn out to be the litigious type of people, open to pursuing
any legal action if they smell an opportunity. Let’s assume the Maximus Rominus High Performance Share
Fund continued to produce stellar returns for the next 2 years, leaving Rachel and Harry upset they missed out
on the high returns, having followed your advice and invested in much more conservative alternatives.
Required
Explain how the following compliance documents together should provide a strong legal basis to defend any
legal claim against you for negligent or poor advice.
a. Statement of Advice
The Corporations Act 2001 specifically requires the financial service providers to give a Statement of Advice to the clients
who are receiving the personal information advice. The requirement is constructed to make sure that the clients are
provided with adequate information for them to gain knowledge about the personal advice provided to them and decide
whether to depend upon it or not the information and the statement in the Statement of Advice must be presented and
worded in a clear, effective and concise manner. Therefore, negligence can be lodged against the financial adviser can be
defended effectively.
b. Authority to Proceed
The authority to proceed is a significant document for the client and the financial adviser. It acts as a part of the
Statement of Advice and is the formal confirmation that the client has gained knowledge about the suggestions and the
recommendations given to them and they have accepted the recommendation given to the client. In this form the
signature of the client has to be taken so that a formal confirmation is given by the client to proceed ahead with the
financial advice. Without the confirmation of the client in the authority to proceed the financial adviser cannot move
forward. Therefore, this can act as a legal evidence when a complaint is lodged against the financial adviser.
c. First appointment File Note
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DFP Module 1 Assignment 1509
The first appointment file note comprises of the appointment of the financial adviser and acts as a proof that the financial
adviser has been appointed with the consent of the clients and the recommendations that have been given by the
financial adviser would be taken only with the consent of the client.
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DFP Module 1 Assignment 1509
Question 4
a. If Rachel and Harry were intent on investing in the Maximus Rominus High Performance Share Fund,
despite your misgivings that the investment time frame (1-2 years) is grossly inadequate, how would
an ‘execution only’ document allow you to facilitate the transaction for them into the Maximus
Rominus High Performance Share Fund without being liable for the advice?
The execution only document allows in avoiding the regulatory obligations that apply during the time of investment
advice. The clear and the credible evidence that a business provides are in the form of an execution in the form of a
notice. This statement is signed by the consumers that agrees that they are aware of the transactions are execution only
and they have not asked for the received advice. It even explains that the decision is their own decision to take the
investment and it is not the responsibility for the suitability of the product. Therefore, it would facilitate the couple take
transaction in the Maximus Rominus High Performance Share Fund.
b. Explain the limitations you have in using this document as a substitute for a Statement of Advice?
The limitation of execution only as a substitute of Statement of Advice is that execution is a form that states that the
client is aware of the decisions that has been taken and SOA on the other hand is the total procedure with the help of
which the financial adviser gives out suggestions that are needed by the client in order to initiate an investment decision.
Units: FNSCUS505, FNSCUS506, FNSFPL501, FNSIAD501, FNSFPL505

DFP Module 1 Assignment 1509
Activity instructions to candidates
 This is an open book assessment activity.
 You are required to read this assessment and answer all 6 questions that follow.
 Please type your answers in the spaces provided.
 Please ensure you have read “Important assessment information” at the front of this assessment
 Estimated time for completion of this assessment activity: 1 hour
Units: FNSCUS505, FNSCUS506, FNSFPL501, FNSIAD501, FNSFPL505
Assessment Activity 7
Short Answer Questions
Australian Economy

DFP Module 1 Assignment 1509
Question 1
Explain the relationship between the Reserve Bank of Australia (RBA) and the Australian government in regard
to monetary policy.
The Reserve Bank Board undertakes the decisions regarding the rate of interest independently of the political process,
which means that it does not accept any advices and instructions from the government of the day on the rate of interests.
This principle of Central Bank independence in the functionalities of the monetary policy in pursuit to the granted goals is
known as the international norm. It restricts manipulation of the rate of interest for the political ends and maintain the
monetary policy concentrated on their long term goals.
With the maintenance of such independence naturally comes a requirement for accountability and consultation. The
relationship of the RBA and the Government has been the independence with the consultation as described in
Consultation with the Government and the Accountability to the Parliament.
Question 2
What precisely does the RBA do when implementing monetary expansion?
From the day to day activities, the domestic markets department of the bank has the job of maintaining the conditions in
the money market in order to keep the cash rate or close to an operating target decided by the board. The cash rate is the
rate that has been charged on the overnight loans among the financial intermediaries. It has a powerful effect on the
other rates of interest and forms the base on which the framework of the rate of interest in the economy has been
constructed. The close relationship among the rate of cash and the other money market rate of interest can be observed.
The transformations in the monetary policy means a change in the operating target for the cash rate and therefore a shift
in the rate of interest framework would prevail the financial system.
The Reserve bank makes use of their domestic market operations in order to keep the cash rate as close as possible with
respect to the target constructed by the board by managing the supply of the available funds in the money market. The
rate of cash is determined in the money market as a consequence of the interaction of the demand for the supply of the
funds overnight. The ability of the Reserve Bank to pursue successfully a target for the cash rate stems from their control
over the supply of funds which the bank utilises to settle transactions among themselves. These are known as the
exchange settlement funds after the accounts at the Reserve Bank in which the bank hold these funds.
Question 3
What is the RBA trying to achieve after implementing monetary expansion in regard to; (1) demand and (2)
inflation?
Demand: The p\method of incorporation of the monetary policy comprises of the two parts:
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DFP Module 1 Assignment 1509
Firstly after 1990, the Reserve Bank has declared the desired aspect of monetary policy in Australia with respect of a
target for the rate of interest on the overnight funds lent and borrowed in the money market and this rate of interest is
known as the cash rate. It is the rate of interest that has an impact on the domestic market operations of the Reserve
Bank. During the transformation in the monetary policy the bank declares a new level of target for the cash rate.
The cash rate target generates the operative goal for the market activities of the the bank. It even acts as an anchor for
the expectations from the market with regards to where the rate of cash rate would be.
Secondly, the bank then functions in the market every day to maintain the rate of cash at the target. These activities are
even known as the domestic and open market operations of the bank. They are inclusive of the transactions in order to
sell and buy the securities in order to bring in new funds to the banking system in order to influence their liquidity. The
main target of these operations has been to bring in demand and supply in the cash market into the balance at the
desired cash rate.
It is significant to identify that the operating processes for the monetary policy of Australia or in any other country for
that matter do not conform to the conventional model. There are no reserve requirements on the banks in Australiatheir
demand for the central bank fund comes from their demand for the settlement of the balances and the not the reserve
requirements. The operations of the Reserve bank concentrates on the establishment of the price at which these were
made available, rather than on the amount of the liquid funds i.e they function in order to have an impact on the cash
rate and not on the money base.
Inflation: in a clear economic aspect, inflation looks at the general rise in the level of price due to a rise in the amount of
money, even though the growth in money stock rises faster than the degree of productivity in the economy. The precise
nature of the price rises is the subject of an economic debate but the word inflation in a shallow manner refers to a
monetary phenomenon in this aspect.
The contemporary governments and the central banks rarely print and distribute real physical money in order to
influence the stock of money instead of depending on the other controls like the rate of interest for the purpose of
interbank lending. There are numerous factors for this but the most significant part are the new financial instruments like
the electronic account balances and other transformations in the process in which the individuals hold money make the
basic monetary controls less projectable and the history has manufactured more than a handful of printing money
disasters that have led to the hyperinflation and the mass recession.
Question 4
There are two different ways a government can implement fiscal expansion. What are the two methods?
The two different ways in which a government can implement the fiscal expansion are:
1. The use of monetary policy to expand the level of money supply
2. The other process has been that the government has to increase the government spending and even cut taxes in
order to stimulate the economy.
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DFP Module 1 Assignment 1509
Question 5
What impact will fiscal expansion have on ‘demand’?
With respect to the Keynesian economic theory, the policy of fiscal expansionary is specifically related with a rise in the
level of aggregate demand- the overall quantity of products that is demanded by all the consumers in the market and in a
way triggers the expansion of the output. This has the impact of the rising economic production especially during the
short run. The main factor for this is very simple as the government spends more in order to construct an infrastructure
for instance it demand the services and goods from the market. The producers respond to this new demand by raising
their level of production.
Question 6
When interest rates are increased by the RBA, the Australian dollar ($AUD) often appreciates (assuming all
other factors remain constant). If the $AUD did appreciate, explain the effect on Australian based businesses
that are:
(i) Importers:
In this scenario it makes the Australian export even more expensive. Thus, there would be a decline in the demand for the
Australian exports. The imports into Australia will become economical thus there will be a rise in the demand for the
imports. This in this event is likely to worsen the deficit in the foreign account. Conversely, this anticipates that demand
for imports and exports is relatively elastic.
In the short term demand is often inelastic, conversely over time of the consumers become responsive towards the
changes in the price therefore the current account may enhance in the short term but can become worse if the
appreciation is existent for a long time. Therefore, appreciation in the dollar price in Australia would be helpful for the
importers.
(ii) Exporters:
On the other hand, it is seen that appreciation in the Australian dollar value would not help the exporters as the goods
and services of the exporters would become expensive for the foreigners. This is what the exporters do not desire even if
in reality practising exporting is more complicated than just the fact that they hope that the current depreciates by a little
margin.
Units: FNSCUS505, FNSCUS506, FNSFPL501, FNSIAD501, FNSFPL505