Group Assignment: Brexit and Its Implications for Australia's Finance

This report examines the implications of Brexit, specifically focusing on its impact on the Australian financial market. It begins by defining "no-deal Brexit" and its potential consequences, including the reintroduction of border checks and disruptions to trade. The report then analyzes the short-term effects of Brexit on Australia's financial market, such as market volatility, the limited exposure of Australian banks to Europe and the UK, and the potential risks related to funding and banking. The study highlights that although there were short-term instabilities, Australia's financial system and banks were well-positioned to manage the disruptions, minimizing the adverse effects. The report concludes that while the economic effects of Brexit are anticipated to be more pronounced in the UK, Australia's financial system has shown resilience. The report is a part of a group assignment for the MAF202 Money and Capital Markets course at Deakin University and was submitted on August 29, 2019.

Running head: BREXIT AND ITS IMPACT
Brexit and Its Implications for Australia
8/26/2019

BREXIT AND ITS IMPACT 1
Executive Summary
The aim of this paper is to discuss about the Brexit Movement and its impact on the financial
market of Australia. The findings of the paper reflects that there is a term generally used that
is No-Deal Brexit under which the UK is asked to immediately leave on 31st October 2019
without considering any type of relationship between both UK and EU. In addition to this, the
Brexit had only short term impact on the financial market of Australia which has been
overcome due to the stable position of Australian banks.

BREXIT AND ITS IMPACT 2
Table of Contents
Executive Summary...................................................................................................................1
Introduction................................................................................................................................3
Task 1.........................................................................................................................................3
No-Deal Brexit.......................................................................................................................3
What will happen under no-deal Brexit?...........................................................................3
Latest news related to No-Deal Brexit...............................................................................4
Task 2.........................................................................................................................................4
The short-term impact of Brexit on the Australian financial market in the immediate
aftermath of the Brexit referendum........................................................................................4
Conclusion..................................................................................................................................6
Reference....................................................................................................................................8

BREXIT AND ITS IMPACT 3
Introduction
Brexit is the term used for the withdrawal of United Kingdom from the European Union.
Following a poll detained on 23 June 2016 under which 51.9% of the voting was in the
favour of leaving the European Union in which the Article 50 was involved of Treaty on
European Union, initiated a two-year procedure that is due to accomplish with the exit of
United Kingdom on the 29 March 2019. The intent of this paper is to present the details
related to Brexit Movement and meaning of the no-deal Brexit. In addition to this, the paper
is also highlighting the impact of Brexit on the financial market of Australia.
Task 1
No-Deal Brexit
A no-deal Brexit talks about the United Kingdom that will leave the European Union
instantly on 31 October 2019 (BBC, 2019). Besides this, according to this term, there will be
no agreements related to the relationship between European Union and United Kingdom in
the coming period. This comprises special agreements related to how the companies of EU
and UK will operate and trade with each other. This situation is not desired by anyone in the
Parliament, but it is considered to be the possible outcome if the politicians cannot decide on
what must be done next, or if UK and EU cannot decide on what relation will both share.
What will happen under no-deal Brexit?
The no-deal Brexit can result in different things taking place. For instance:
 Reintroduction of the border check
 Trade as well as transport between EU and UK can be majorly influenced
 In the EU nation without driving license adults cannot drive.

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 In the EU countries the cost of using phone can be high.
 There will be no transition period that was proposed by former Prime Minister
Theresa May as it was disallowed by MPs. (Bloom, 2019)
Latest news related to No-Deal Brexit
In the starting of August 2019, the government of Boris Johnson the Prime Minister has
declared the extra funding of around £2.1 billion for preparing for the no-deal Brexit that is
doubling the money amount set sidewise this year (BBC News, 2019). In addition to this, 92
days pending for UK to leave EU, it is important for the government to strengthen it’s
planning for dealing with the future situation (BBC News, 2019).
Task 2
The short-term impact of Brexit on the Australian financial market in the immediate
aftermath of the Brexit referendum
The Brexit’s immediate impact referendum is considered as the time of intensified instability
of the financial market that has majorly retreated relatively at fast pace. This signified a
pressure test of the market structure in the stir of the regulatory reforms post crisis and to date
the financial system at the global level has endured the event well (Council of Financial
Regulators, 2019). Brexit has an immediate short term impact on the financial market of
Australia as described below:
Volatility
Under the instant result of the Brexit ballot, Australia has acknowledged short term instability
in the financial market comprising downturn in the bond yield of Australia, depreciation on
the value of Australian Dollar, and decreasing share prices (The Conversation, 2016). But
since then, the Australian financial market has recovered and becoming stabilised.

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Limited exposure of banking functions to Europe and United Kingdom
The banks of Australia now have limited exposure to the market of Europe and United
Kingdom and are stable and properly capitalised. Hence, the banks of Australia are
positioned properly for responding to all kind of negative shocks that arise from Brexit
(Australian Institute of International Affairs, 2019). This results in minimizing the influence
on the financial system of Australia in the short term.
Risk of Funding and Banking
The banks of Australia source funding of around 5% from the debt market of United
Kingdom (Black, 2016). Few of the banks of Australia also uses United Kingdom take enter
to the debt capital market of Europe. It comprises the accessed debt capital by these
measures; the banks of Australia raise around 45% of the debt securities in the United
Kingdom of around $200 billion (Black, 2016). There are few of the issues such as post
Brexit, funding will be expensive and tough to get. But, banks of Australia have high
liquidity and the Australian Reserve Bank is capable enough to insert liquidity if required in
the financial system.
After the financial crisis at the global level, the banks of Europe and United Kingdom
decreased their operations in the market of Australia so that they can only hold 5% of the
banking system assets of Australia (Black, 2016). Hence, any influence of the Brexit on these
banks, for instance if they desire to decrease their functions in the market of Australia, will
possess considerably short term influence in Australia.
Economic effects majorly stood in the United Kingdom
It is majorly anticipated in the Australian market that most of the adverse influence rising
from the Brexit will be focused in the United Kingdom. This comprises low economic

BREXIT AND ITS IMPACT 6
activity, higher improbability, employment, low rate of exchange, less investment, lower
asset prices, and consumer spending. These adverse influences will flow to Australia
primarily through:
 The financial links of Australia with the United Kingdom (comprising the United
Kingdom considered to be the second biggest foreign investor in the market of
Australia);
 Decreasing trade between Australia and United Kingdom and
 Low prices for the commodity exports of Australia
But, these influences are anticipated to be limited or restricted in the Australia in the short
run, given:
 United Kingdom only makes of contribute 2.4% in the global economy (Black, 2016);
 Many of the trading partners of Australia are now placed in the region of Asia Pacific;
and
 The banks of Australia have very limited or restricted expansion in the European and
United Kingdom market which reflects that the banking system of Australia will
willingly be capable to manage all the disruptions related to Brexit.
The tourism industry of Australia will be influenced by the United Kingdom’s economic
downturn. Around 7% of the travel exports of Australia are to United Kingdom that can
decrease at any period of low or negative growth of UK (Black, 2016). This will be
compounded by the UK sterling’s depreciation.
Conclusion
The above paper has presented the discussion related to the Brexit that is exit of United
Kingdom from the European Union. The analysis highlights that Brexit is one of the big step

BREXIT AND ITS IMPACT 7
taken by the respective government and had major impact on different countries. Under this,
the term is generally being used that is No-Deal Brexit which says that United Kingdom has
to immediately leave EU and no though has been given to the relationship between UK and
EU. In addition to this, the paper has discussed regarding the immediate impact of Brexit on
the financial market of Australia. The analysis reflects that the financial market of Australia
was impacted in the short term but it has stable financial condition and banks which support
the economy in overcoming the issues.

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Reference
Australian Institute of International Affairs (2019) Brexit and Australia: The Way Forward
[Online]. Available from http://www.internationalaffairs.org.au/brexit-and-australia-the-way-
forward/ [Accessed 26 August 2019]
BBC (2019) No-deal Brexit: 10 ways it could affect you [Online]. Available from
https://www.bbc.com/news/uk-politics-47470864 [Accessed 26 August 2019]
BBC News (2019) What is a no deal Brexit? [Online]. Available from
https://www.bbc.co.uk/newsround/46607260 [Accessed 26 August 2019]
Black, S. (2016) Impact of Brexit – An Australian Perspective [Online]. Available from
https://www.codea.com.au/publication/impact-brexit-australian-perspective/ [Accessed 26
August 2019]
Bloom, D. (2019) What is a No Deal Brexit? 21 ways you'd be affected if UK leaves EU with
no deal [Online]. Available from https://www.mirror.co.uk/news/politics/what-no-deal-
brexit-what-13419829 [Accessed 26 August 2019]
Council of Financial Regulators (2019) Report On The Implications Of Brexit [Online].
Available from https://treasury.gov.au/sites/default/files/2019-03/CFR_Brexit.pdf [Accessed
26 August 2019]
The Conversation (2016) How a Brexit could impact on Australia [Online]. Available from
https://theconversation.com/how-a-brexit-could-impact-on-australia-61301 [Accessed 26
August 2019]