MAF202 Group Report: Brexit's Implications for the Australian Market

This report examines the long-term implications of Brexit on the Australian market, considering the initial market reactions and the uncertainty surrounding EU-UK negotiations. It discusses potential negative economic effects, including reduced trade and investment, and analyzes the Australia’s Council of Financial Regulators' (CFR) opinion on the matter, highlighting the potential for increased risks and offshore funding challenges. The report also touches upon the resilience of the Australian financial system and the importance of ongoing monitoring and reforms to mitigate potential disruptions. Desklib provides access to a wide range of study resources including past papers and solved assignments.

Running Head: BREXIT 1
BREXIT

Running Head: BREXIT
Contents
Task 3...............................................................................................................................................3
Long term implications on Australian Market.............................................................................3
Task 4...............................................................................................................................................5
Australia’s Council of Financial Regulators opinion...................................................................5
References........................................................................................................................................7

Running Head: BREXIT
Task 3
Long term implications on Australian Market
The exit of the EU was much of a startling fact for the financial market and since the financial
markets are very uncomfortable in the days followed by the referendum the EU’s exit is a big
slice. As it can be observed while studying the market there were very sharpies in the yields of
the bonds as well as prices of the equity. Amongst the lowest price was the share of the bank.
There were bigger fluctuations in the foreign markets (Abraham, 2018). The long term effects of
the Brexit are quite uncertain and mostly it depends on the negotiations between the EU and UK.
The half of the trading of the United Kingdom is with the European Union and there is no option
left for the government but to follow the live example of Norway and Switzerland in
accumulating the benefits of a free trade zone (Jacob, Graham and Moller, 2017).
The medium to long term impact of the Brexit on the UK and Europe and on the overall
economy will majorly depend upon the degree of the uncertainty and the time and the result of
the agreements on the exit. As observed at the level of the economy the length investment
growth was already poor even before the Brexit comes into the action and now the situation is
likely to tear apart until the next agreements are known (Ramiah, Pham and Moosa, 2017). The
worst case scenario could be when the firms chose to shift and select the new location from
United Kingdom to European Union depending on the accessibility towards the single habitat
market. On the off chance that the money related markets are abbreviate and crushed, as they did
in the year 2008, the greater Australia needs to endure so as to collect the enormous seaward
financing. The costs of the offers fall pointedly and the administration assurances would be
called up over and over. A wide range of the studies determines the long –run economic effects

Running Head: BREXIT
of the Brexit will not at all be positive for the UK. The economic activities will be opaque and
the political negotiations will still be unclear. According to the IMF the estimates suggests that
by 2017, UK GDP could be between 1 per cent and 3¾ per cent lower than if the UK had voted
to stay in the European Union. There is a significant degree of uncertainty around the estimated
economic impact of Brexit. The IMF forecast a wide variation in output losses across individual
economies, reflecting differing trade and financial exposures to the UK, as well as the policy
space to respond to negative spill-overs (Treisman and Di Lieto, 2018).
If the financial markets are shorten and squeezed, as they did in the year 2008, the bigger
Australia needs to suffer in order to accumulate the large offshore funding. The prices of the
shares fall sharply and the government guarantees would be called up again and again. The only
right side of this scenario is the price of the gold stock if there is a surge in the safe heaven.
Apart from the forecasts from the central authority, the Brexit created a global tail, which
ultimately resulted in increasing the problems for Europe (Arora, 2017).
 When the risks are not eventuated on the proper basis, the Brexit is likely to be
insignificant in the country like Australia.

Running Head: BREXIT
 The trade exposure of the Australia is typically low at 2.8% whereas that of the European
Union is around 4.6% (Norris and Van Es, 2016).
 One of the most crucial and the major risks the Australia is facing is that the trading
partners of Australia working in the global market have major exposure towards UK
rather than EU. In simpler terms China is one of the largest partners of Australia and the
numbers of the exports that are traded are 15.6%.
 The USA on the other hand tends to be the largest partner and the exporter of about
18.2%. Reduced demand from the UK for goods from countries like China and the USA
could lead to reduced demand from China and the USA for Australian exports (Arner,
Barberis and Buckey, 2016).
 Aside from the both direct as well as indirect effects, regular concern over Brexit relates
to the ability to initiate long-term macroeconomic concerns in the Australian economy.
Through increased uncertainty, international growth and trade, concerns about domestic
and reducing consumer and increases in unemployment as well as business confidence all
are aligned post brexit.
Task 4
Australia’s Council of Financial Regulators opinion
The Council of Financial Regulators (CFR) has issued a report to Government on the potential
effect of Brexit on the Australian economy. It considers improvements up to and including
Tuesday 5 July.
The Australian Council agencies have developed the contacts over the period of the time. The
great example cab be that of RBA, where the RBA participated fully in the international aspects

Running Head: BREXIT
such as Bank of International Settlement (BIS), the meeting of the governors, the calls on the
conference and the settling of the issues on among the East Asian as well as Pacific Central
Banks. ASIC has also participated in IOSCO Asia Pacific-Regional Committee conference calls
where the Australia was successful in establishing a bilateral contact with the FCA. They infer
that the result of the decision on 23 June spoke to a calculable negative stun, however the effect
on household and global money related frameworks and markets was well-contained and
efficient. Treasury has also engaged with Finance Deputies of G20 and they had several
discussions with the higher authorities along with the overseas-based officials, including in the
US, UK, Japan and China as well as the Financial Stability Board (FSB), OECD and IMF
(McDougall, 2016). The overall reaction of the Australian economy was a bull reaction as the
major effects are not ascertained in the light of the brexit.
The statement quoted by the Australia’s Council of Financial Regulators is not justified as post
the decision of the Brexit Australia had to suffer in terms of the economy as well as in terms of
the import and export of the goods and the services. The issues were not at all minor and the
impact could not be resilient. Though the council agencies have been constantly supervising and
monitoring the developments, the funding and the liquidity is affected to a higher extent. The
exposure risks have been doubled and the off shore funding is ceased completely. On the proof
to date, they state it proposes that the local and global monetary change motivation received after
the budgetary emergency is in good shape. This way the operations of the business tend to affect
the overall economy and the society of the Brexit (Allen, 2015).
The credit conditions and the ongoing settlements in the housing sector has also been looked
upon and it can be seen that the growth of the housing credit has been stabilized to an extremely
low level. The demand has been subdued and there has been tightening in the credit supply.

Running Head: BREXIT
According to the ABC news, a report stated that the impact of the Great Britain’s proposed exit
from the European Union has found the impact on Australia would be of short term nature.
Despite initial volatility and some surprise by markets, markets have substantially either re-
gathered or stabilized in case of Australian markets. In case of the medium to long terms
liabilities the impact will be based on the negotiation of EU with UK, especially when the
transitions are not orderly. The trade market of the Australia provided the limited exposure to the
affected markets (McDougall, 2016). Also it can be seen it is more efficient and oriented towards
Asia and Europe and made the Australian banks as a safe care taker to handle the disruptions of
nay nature. There are several reforms which are also being introduced by the ARPA, for
maintaining the resilience of the overall system. Hence it can be concluded that the post Brexit
the entire situation will depend upon the negotiations otherwise the major risk is shifted to the
other countries and Australia does not hold much towards it.

Running Head: BREXIT
References
Abraham, M., 2018. Brexit anouncement effect on the New Zealand stock market: Theory and
evidence. New Zealand Journal of Applied Business Research, 16(1), p.1.
Allen, H.J., 2015. Putting the Financial Stability in Financial Stability Oversight Council. Ohio
St. LJ, 76, p.1087.
Arner, D.W., Barberis, J. and Buckey, R.P., 2016. FinTech, RegTech, and the
reconceptualization of financial regulation. Nw. J. Int'l L. & Bus., 37, p.371.
Arora, J., 2017. The Impact of the Brexit Referendum on Various World Stock Markets (Doctoral
dissertation, The University of North Carolina at Charlotte).
Jacob, A., Graham, L. and Moller, A.K., 2017. Implications of Brexit to the Asia-Pacific region:
with a focus on least developed countries.
McDougall, D., 2016. Australia and Brexit: déjà vu all over again?. The Round Table, 105(5),
pp.557-572.
Norris, P. and Van Es, A.A. eds., 2016. Checkbook Elections?: Political Finance in Comparative
Perspective. Oxford University Press.
Ramiah, V., Pham, H.N. and Moosa, I., 2017. The sectoral effects of Brexit on the British
economy: early evidence from the reaction of the stock market. Applied Economics, 49(26),
pp.2508-2514.

Running Head: BREXIT
Treisman, D. and Di Lieto, G., 2018. Having the cake and eating it too: the benefits of
decoupling Australia’s trade governance in Europe after Brexit and beyond. Australian and New
Zealand Journal of European Studies, Vol10 (1) pp, pp.3-28.