Understanding Financial Markets, Regulations and Economic Policies

This assignment provides an overview of the Australian financial system, covering topics such as the role of financial markets, the difference between primary and secondary markets, and the impact of deregulation. It discusses the Financial Services Reform Act 2001 (FSRA) and its key elements, the responsibilities of ASIC in issuing financial service licenses, and the objectives of FSRA. The assignment also examines the role of the ACCC in administering the Trade Practices Act, professional indemnity and public liability insurance, and the Know Your Client (KYC) and Know Your Product rules. Furthermore, it explains intermediation, the components of the financial system, balance of payments, prime overdraft rate, inflation, and the tools used by the government and Reserve Bank to control the economy. The document also defines different measures of money supply, the stages of the business cycle, over-the-counter markets, and the roles of key institutions such as the Reserve Bank, ASIC, and ACCC. Finally, it touches upon financial products, investment concepts, financial risk management, securitization, licensing requirements for financial advisors, and important documents like the Financial Service Guide, Statement of Advice, and Product Disclosure Statement. Desklib provides access to similar solved assignments and study resources for students.

Running head: GENERIC KNOWLEDGE
Generic Knowledge
Name of the Student:
Name of the University:
Author Note:

1GENERIC KNOWLEDGE
A) One role of financial markets is to facilitate an exchange between borrowers of funds and
sellers of financial assets.
B) The main difference between primary and secondary market is that primary markets
relate to direct financing and secondary markets relate to intermediate financing.
C) Increasing emphasis on intermediate markets is not a feature of the changing financial
service industry.
D) The deregulation of the Australian financial system has increased market competition but
reduced market efficiency.
E) The economic problem refers to the fact that resources are scare relative to the unlimited
wants of consumers.
F) Main measure of Economic Activity is Real GDP.
G) Overall growth in economic activity is the major source of improvement in Australia
living standards.
H) A contractionary phase of the business cycle would generally be indicated by a decrease
in unused capacity of industry.
I) The business cycle measures the change in the level of inflation and unemployment in the
economy.
J) Fiscal Policy attempts to influence the money supply.
K) The vehicle/ institution used to implement fiscal policy is the Reserve Bank of Australia.
L) Prices and Income Policy centers around the belief that it can help control inflation and
promote employement.
1. The Financial Services Reform Act 2001, is a culmination of an extensive reform. The
three key elements of Financial Services Reform Act 2001, are

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 To provide licenses of financial services inclusive of a disclosure along with
conducting the framework, a synchronized approach is applied.
 To disclose the products of finance implement of a single constitutional regime is
decided.
 The authorizing of fiscal markets including clearing along with payment services.
2. ASIC will be responsible for issuing Australian Financial Services licenses. The
application must satisfy certain criteria to obtain a financial service provider`s license.
They must possess:
 Suitable fiscal resources along with internal controls.
 Having pertinent capability, skill along with understanding to transport out the
projected actions.
 There shall be no reason persisting that the application shall not be able to fulfill their
obligations of a license in an honest, fair and efficient manner.
 The applicant must has satisfactory systems for the teaching and regulating its agents.
 The applicant can prove continuing compliance with the regulation.
 The applicant shall meet supplementary agreed standards (stipulation condition if
any).
3. The three main objectives of FSRA which can be identified are listed below in details:
 To establish a single licensing system which would be applicable to all people and
organization which are engaged in providing financial services.
 To introduce appropriate disclosures for financial products which are consistent and
which can be compared. In other words, the FSRA aims to provide all necessary
information regarding a financial product or service to the customer.

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 To establish standard of conduct for financial service providers.
4. The ACCC administers the Trade Practices Act. The legislation cover such things such as
 Introduction about the conceptions of consumer law a basic understanding about
the explanatory provisions and defining consumer.
 The standards those are framed to conduct trade and commerce in business
following general rules of protection.
 Rules regarding reorganization of business forms and provisions for their specific
protection.
 Putting into action and remedial measure about the law.
 Offences
5. Professional Indemnity: it is an insurance that is constructed about the individuals who
gives recommendations including facilities to their clients. They provide protection
against the claims including authorized cost for the loss that has been caused to third
parties that is arising out of act, breaching, or omitting professional duty in the progress
of business.
Public Liability: An insurance that is framed for those professionals interacts with public.
This protect from the claims of individual injury or damaged caused to property that is
suffered by any third person by the activities of corporate.
A limit of $5,000,000 is involuntarily comprises in a yearly Public Liability Policy. Aon
and Ace Insurance Limited is the insurer.
6. Know your client Rule:
 Enriched due diligence measures for PEPs
 Entities those are covered under KYC.

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 Requires of Suspicious Transaction Reporting (STR)
Know Your Product Rule:
 Having depth knowledge about the product
 Understand the role of gate keeper
 Risk in new and complex product.
 Identifying the new product
7. Intermediation is a type of institution that provide a service of middle man between
various parties to simplify transactions. The intermediary involves in averting the risk,
conversion of denomination and collecting premiums on debt instruments.
8. The financial system comprised of the provisions that covers the deriving and loaning of
funds and the transmission of possession of fiscal entitlements in Australia those consists
of superannuation, debt, equity and derivative markets, insurance including deposits
taking institution.
9. The difference between the two separate accounts under balance of payment is that
current account takes into account the export and import of goods and facilities along
with the unilateral transfers on the other hand, capital account takes into account the buy
and sell off assets and liabilities in a specific year.
10. When there is balance of payments surplus it will increases the economic growth during
short term. As it has ample saving to lend nations those buying the products. Production
of factories increases due to growth in exports and thus it allow increasing employment
rate.
11. The prime overdraft rate can be defined as the interest rate which is charged by banks on
short term loans which is offered to the most trustworthy creditor of the business. In other

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words, it is the rate at which the banks offer credit to customers and the same acts as a
guide for banks in setting the interest rate which is to be charged on loans.
12. Inflation is the rate of increase in prices. There are basically two types:
 Cost-push Inflation: This arises when there is a rise in the rate of manufacture for
organizations initiating cumulative supply to move to the leftward.
 Demand Pull Inflation: This arises when cumulative demand rises at a quicker rate than
cumulative supply. Demand-pull Inflation will classically arise when the economy is
budding quicker than the long run inclination rate of progress. (Downes, Hanslow &
Tulip, 2014).
13. The two key variables that Government and Reserve Bank must control are reserve repor
rate and repo rate. Reserve repo rate refers to the rate of short term borrowings at which
the central bank takes loan from other banks. While on the other hand, Repo rate is the
rate at which credit is offered by the central bank to other banks and this is also a method
of instilling liquidity in the economy. Therefore, both these rates are considered to be
important from banking perspective.
14. The various definition for supply measures of money is provided below
 Narrow Measure includes all exchange that is cash inflow explorer’s payments,
demand payments at commercial banks held by the community, and other
checkable payments. Narrow money includes all currency in circulation,
traveler’s checks, demand deposits at commercial banks.
 Intermediate Measure comprises all in narrow measure including savings credits,
time credits under USD 100,000 and stabilities in trade currency market funds. It

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is often referred to as a mid-measure because it is wider than narrow measure but
not as comprehensive as broad measure.
 Broad Measure comprises about intermediate measure including time deposit
those that are larger than USD 100,000 stabilities in official money market
reserves along with the agreements regarding repurchasing term.
15. The four stages of business cycle are
Prosperity Phase: In this phase, standard of living improves, as there is an expansion of
output, employment, profits, prices and income. (Johnson, 2014).
Recession Phase: in this phase activities of economic slows down. As demand keeps on
falling, the investment plans for future along with the over production are too given up. A
steady decline of output, profits, income, employment. The growth in redundancy causes
a shrill failure in revenue and collective request. Commonly, recession lasts for a small
era.
Depression phase: When there is an incessant reduction of income, prices, output
employment and profits there is a fall in the average of living and depression sets in.

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Recovery phase: In this phase, there is rise in economic actions. Along with rise in
demand, there is rise in production as well as investment. In this period, there is overall
increment.
16. In over the counter markets trade take place in bonds, derivatives, currencies along with
the product that are structured. These markets are even use to trade equities. These
markets are classically diverged into consumer markets. Here, trader deals with intuitions
and corporations. In the inter dealer market traders deal with each other. Bid ask rule is
applied in over the counter market.
Major over the counter markets: ANZ, J.P Morgan, Westpac and NAB.
17. Roles:
 Reserve Bank: a) Stabilizing finance
b). monitoring fiscal policy.
c). operations in fiscal markets.
 ASIC: 1) Preserve, simplify and expand the performance of fiscal systems.
2). Encourage self-confident and up-to-date stockholder contribution
3) Manage and implement the law successfully and professionally
4) Procedure and store material competently and rapidly.
 ACCC: 1) notify and instruct industries about their accountabilities under the Act
while making fiscal rights, as well as provided direction.
2) Raise consciousness between customers about their privileges under the Act.

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18. A financial product is defined as an instrument that helps in saving, investing, along with
getting insurance or getting a mortgage. Different banks, insurance provider, and fiscal
institution provide products. Stock brokerage and the agencies of credit card including entities
sponsored by government also provided fiscal products. These products are categorized under its
type of class of asset, instability along the risk and return.
19. The concept of making a financial investment has two key element interest rate along with
risk and return range.as savings increases interest rate would fall, this leads the growth of
investment. Before investing, investor shall study that returns are greater than the underlying
risk.
20. The concept of fiscal risk management encompasses arrangements under which it includes
change in price of raw materials including the fluctuating of currency, loans and exposure to
loan. However, in does not include other types of risk such as operational risk and liquidity risk.
21. Securitization is the process by which a group of financial assets which may comprise of debt
are joined together to form a single security. These become increasing popular among the
investors in mid-nineties and since then is continuously used by investors. Interest is provided to
the investors regarding such securities.
22. Example- Mr. A want to buy 1000 shares of Company PQO. At $5 per unit. However, does
not have sufficient amount of $5000 to invest. Available amount is $2500. If Mr. A buys, he has
to buy on margin borrowing the half amount from the brokerage firm along with clattering the
loan with company PQO. The original loan figure is the initial margin as a percentage of
investment.
This strategy would suit to the investors who are more prone to hedging and speculation.

9GENERIC KNOWLEDGE
23. Generally, everyone who advises on or sells financial products must possess a license.
24. A Financial service guide is a vital data. It is constructed to assist the investor in taking
decision to avail the service or not as per labelled in the guide.
A statement of Advice is a document which contains financial advice which is provided to an
individual by his financial planner. The advice can be related to any financial product which is
on offer.
Product disclosure statement- In this statement description about the product along with the cost
and other charges.
An entity- in business an entity means organizational arrangements that has its own objectives,
accounts and procedures.
25. FPA code of ethics are as below:
 Integrity
 Objectivity
 Client first
 Professionalism
 Fairness
 Confidentiality
 Competence
 Diligence
26. Requirement for external dispute resolution system are an essential component of financial
service. ASIC had previously released a policy Statement on an approval of external dispute

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schemes (PS 139). This is related to financial planning as they provide financial services and
manages credit lending’s.
27. The Financial Transaction Report Act 1988 is designed to deter money laundering and the
associated risk of tax evasion and organized crime. Cash dealer shall report about the suspicious
transaction to the AUSTRAC CEO at the prescribed period and norms.
28. Advantages and disadvantage of MIA:
Advantages:
• Diversification; component-containers advantage from possessions blowout over a varied
diversity of trades and corporations, thus decreasing the risk innate in any single venture.
• Full-time specialized management, which discharges stockholders of any era-to-era
administration and greatest-possession responsibilities. The deposit might be capable to
suggest improved venture aptitudes than specific depositors can offer.
Disadvantage;
• Absence of controller and no direct possession.
• Scheduling of realisation of investment expansions.
29. The five main regulatory mechanism adopted by ASIC to achieve its objectives are:
 its premeditated implication
 the probability of accomplishment
 the problems precise to the situation
 the penalties of following misdemeanors
 The obtainability of capitals.

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30. Lord Aitken`s neighbor principle- the contemporary predisposition to compare the
neighbor belief as an intellectual prescription in which the appropriate limitations of
neglectful accountability is to be dogged via a two-stage test.
31. The three main sources of government revenue are custom duties, tax and capital
revenue.
Example- tax revenue- social security contributions
Capital revenue- long-term investments
Custom duty- luxury car tax.
Government uses the revenue for the welfare of its citizen. Creating more opportunity of
employment and increase the standard of living.
32. The asset cost base is that cost at which an asset is purchased including certain other cost for
its procurement.
33. Disposal price is that price which is paid for an object when the object is ultimately sold.
When any product is purchased from the market, the sale price is known as disposal price. The
company can consider the disposal price by adopting cost plus profit approach where the total
cost of the product is computed and on the same a profit is made. Another method is fixed price
method which is computed considering a fixed rate for sale of the item.

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Reference:
Downes, P. M., Hanslow, K., & Tulip, P. (2014). The effect of the mining boom on the
Australian economy.
Johnson, R. C. (2014). Trade in intermediate inputs and business cycle comovement. American
Economic Journal: Macroeconomics, 6(4), 39-83.