25556 Chapter Notes - Chapter 1 & 2: Australian Prudential Regulation Authority, Anne Henderson, Australia Act 1986
Document Summary
The problem of asymmetrical information is overcome through nancial regulations that require the more informed party to provide certain information to the less informed supplier of funds. In other cases, the problem is overcome by restricting participation in the market to professional traders who understand risk. Incentive problem: incentives offered to participants in the nial system are problematic if they encourage irresponsible or unethical behaviour. An individual faces a moral hazard when they have incentive to act in his or her own interests at the expense of the other party to whom they may owe a duty of care. Incentive problems are addressed in situations where nancial institutions have a duciary duty to their customers, meaning a legal requirement that they act in their customer"s best interests. Act as the australian government"s bank and depository. In uence governmental revenue and expenditure through scal policy. In uence interest and exchange rates through monetary policy.
