MAF202 Money and Capital Markets: Brexit Impact on Australia

This report examines the implications of Brexit, particularly a 'no-deal Brexit,' on the Australian financial market. It discusses the causes and potential impacts of Brexit on the European Union and the international community. The report further analyzes the short-term effects of the Brexit referendum on the Australian financial market, focusing on the responses of Australian regulatory bodies like the Council of Financial Regulators (CFR) and the Australian Prudential Regulation Authority (APRA). It highlights the similarities and differences in their approaches, the impact on equity and exchange rates, and the measures taken to stabilize the Australian economy. The report also touches upon Australia's trade relations with the EU and the UK, and the potential opportunities and challenges arising from Brexit. Desklib offers a wide range of resources including past papers and solved assignments to aid students in their studies.

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Money and Capital Markets 1
Contents
Task 1...............................................................................................................................................1
Task 2...............................................................................................................................................1
References........................................................................................................................................4

Money and Capital Markets 2
Task 1
Brexit is an abbreviation of Britain exit that refers to the decision taken by UK to leave the
European Union and continue individually. The main cause of occurrence of Brexit was the
economy of the country. The people of the country knew that UK has the audacity to grow
without interference of any other power. They also knew that interference of European Union
has the power to control the functions and legislations of the country and till the time UK is
governed by EU, the country would not be able to rise above and increase prosperity. The
country wanted to regain control over the EU immigration. The law making bodies of UK were
efficient enough to make rules for people and make them abide it. Thus, the second ultimately
reason of Brexit was the people of UK did not wanted EU to make laws on behalf of the county
(Golab, Knight, and Zamojska 2016). The country wanted to eliminate the pressure of European
Union from them; also, they wanted to rise above inequality and social liberalism in the
environment. Resulting in which, they voted for Brexit from the European Union.
Brexit will show long-term economic, institutional and political shift in the economies of both
the parties. This process will affect increment in trade barriers, capital flow and labour mobility
in UK as well as other EU member states as well. Withdrawal of the country from the frictionless
economic relationship impacted on the cost of both the parties as income and employment
reduced. Thus, it should be noted that no deal Brexit refers to the process of leaving European
Union immediately after the vote out and then there would not be any agreement in place to
enhance their relationship in future (Murray, and Matera 2016).
Task 2
Talking about the impact of Brexit on Australia, it should be noted that with the occurrence of
this type of event, it was sure that Australia would face several complex consequences and
serious challenges in the business environment. The trade negotiation with EU gained
momentum that subsequently increased the solidness of the Australian-European Union Free
Trade Agreement. However, the committee of Australia responded that the country should
continue its relations with European Union as a priority. From the perspective of the committee
of Australia, UK departure from EU can be seen as coincidental towards the free trade relations

Money and Capital Markets 3
of Australia with EU. No Deal Brexit could have a negative consequential impact on the state of
Australia. Australia’s relationship with EU had recently improved and now Brexit gave an extent
of negotiation of Free Trade Agreement with the nation (Abraham 2016).
With this agreement, relationship between Australia and UK is affected due to which
employment level is reduced and transactions are delayed. The government of the country need
to change their trading patterns because they aim to keep a fixed relationship with both the
parties. However, it agreement will now give opportunities several other countries like Ireland
etc. to manage the trading activities in the business environment. Both the parties EU and
Australia aim to tackle the challenges through international cooperation and multilateral
frameworks. Thus, it should be noted that due to substantial relationship of Australia with EU,
the country will not struggle in managing their relationship, however the extent of prosperity of
the country is reduced along with increment in trade complications. The CFR (Australia’s
Council of Financial Regulators) stated that the country need to manage several financial market
repercussions due to occurrence of Brexit (McDougall 2016).
It is expected that small impact will be seen on the economy and financial sector of the country.
Australia as more links with Asia than Europe so the direct impact on the country become
limited. The CFR responds that uncertainty in the country remains heightened, however lower
exposure provides advantage to the country to manage the transactions effectively. Further, it
should be noted that the APRA (Australian Prudential Regulation Authority), CFR etc. do not
have a substantial difference on the responses of Brexit. The implication of Brexit is seen to
government and regulatory bodies in the same way, so both the parties work with a common
motive to increase the stability of the country. The bodies of Australia saw that the equity and
exchange rate depleted with occurrence Brexit in the environment. Market-implied expectations
of US federal funds rate scaled back abruptly following the Brexit vote (ABC.Net 2019). The
sovereign debt yield also fell sharply with the Brexit vote out. Resulting in which, the Australian
financial markets reacted strongly to the UK referendum. Further, the Australian regulatory
bodies, worked repeatedly to reduce the effectiveness of the intraday volatility of the market
(Heisbourg 2018). Thus, it should be noted that both the parties acted in a similar way so as to
make the economy of the country stable. Australian CFR engaged in a Treasury along with G20
Finance Deputies and initiated discussion with the authorities overseas so as to form solid bonds

Money and Capital Markets 4
with them (Council of Financial Regulation 2019). APRA contacted the UK Prudential
Regulation Authority so as to analyse the risk of Brexit occurred to them and how they can
resolve it. Council agencies also engaged actively with domestic institutions and monitoring
developments. Thus, it should be noted that as such there was not difference in the actions of the
agencies if compared with the government of the country Australia (Abbott 2019).

Money and Capital Markets 5
References
Abbott, M., 2019. The United Kingdom’s Economic Relations with New Zealand and Australia
after Brexit. The Round Table, 108(1), pp.21-35.
ABC.Net., (2019) What impact could Brexit have on Australia? [online]. Retrieved from
<https://www.abc.net.au/radio/programs/worldtoday/what-impact-could-brexit-have-on-
australia/10719640> [Accessed on 31 Jul. 19].
Abraham, M., 2016. Brexit and disposition effect: Evidence from new zealand, australia and
indian stock markets. Australia and Indian Stock Markets (November 16, 2016).
Council of Financial Regulation., (2019) REPORT ON THE IMPLICATIONS OF BREXIT
[online]. Retrieved from <https://treasury.gov.au/sites/default/files/2019-03/CFR_Brexit.pdf>
[Accessed on 31 Jul. 19].
Golab, A., Knight, K. and Zamojska, A., 2016. The era of Brexit and its influence on European
Union member states, Europe and the rest of the world.
Heisbourg, F., 2018. Europe's Defence: Revisiting the Impact of Brexit. Survival, 60(6), pp.17-
26.
McDougall, D., 2016. Australia and Brexit: déjà vu all over again?. The Round Table, 105(5),
pp.557-572.
Murray, P. and Matera, M., 2016. Brexit and Australia, the Way Forward. Australian Institute for
International Affairs.