200910 Chapter 8: Financing -week 8 - Google Docs

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nellyxo20

6 Jun 2018

School

UWS

Department

University of Western Sydney

Course

200910

Professor

Neha

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Chapter8TheAustralianandGlobalfinancialmarkets

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Objectives:

8.1Definefinancialmarkets.

8.2Explaintheroleoffinancialmarketsinadevelopedeconomy.8.3

Describefinancialintermediariesinadevelopedfinancialmarket.8.4

Discussmovementoffundstofinancebusinessactivities.8.5Describethe

variouscomponentmarketgroupsthatmakeuptheoverallAustralian

financialmarkets.

8.6Outlinethemainpatternoffundflowsunderlyingthefinancingof

businessesinAustralia.

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8.1Whatarefinancialmarkets?

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Acomplexofinstitutions,proceduresandarrangementsthatfacilitatea

transferoffundsfromoneentityintheeconomytoanother.

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Atypicaltransactioninthefinancialmarketinvolvesoneparty,the

investor,transferringfundstoanotherparty,thenetuseroffunds,andin

exchangereceivingafinancialassetthatentitlestheinvestortoreceive

somecashflowsinthefuture.

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‘Financialmarkets’isageneraltermthatdescribesmanysubmarkets,for

examplethedebtmarket,wherefirmsandindividualsborrowandlend

money,andthesharemarket,orstockmarket,wherefirmsandindividuals

buyandsellcompanyshares.

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3playersinthefinancialmarket:

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Borrowers(individualsandbusinesses)•Savers(mostlyindividuals)

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•Financialintermediaries(e.g.commercialbanks)

aninstitutionthatassiststhetransferofsavingsfromeconomicunitswith

excesssavingstothosewithashortageofsavings.Thatis,itactsasan

intermediarybetweensaverandborrower.

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8.2Roleoffinancialmarkets

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8.3Describefinancialmarkets

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Financialintermediariesshareacommoncharacteristic:theyoffertheir

ownfinancialclaims,calledindirectsecurities,toeconomicunitswith

excesssavings.Whenfinancialintermediariessellfinancialclaims,they

areeffectivelyborrowingmoney,astheyreceivemoneyfrominvestorsin

exchangeforapromisetopaythembackinthefuturewithsomeinterest

payments.

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Theproceedsfromsellingtheirindirectsecuritiesarethenusedto

purchasethefinancialclaimsof—orinvestin—othereconomicunits.These

latterclaimscanbecalleddirectsecurities.

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Thus,abankmightsellfixedtermdeposits(theirindirectsecurity)and

purchasethedebentures(directsecurities)ofsomemajorcompanies.

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Indirectsecuritiesshortmaturity,shortdemoninations,largevolumesDirect

securitieslargematurity,largedenominations,shortvolumes

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Financialintermediariesfacilitatethemovementofmoneyfromsaversto

borrowers:

CNIISIP

commercialbanks

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nonbankauthoriseddeposittakinginstitutions

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investmentbanks

insurancecompaniessuperannuationfunds

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investmentcompanies

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privateequityfirms

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CommercialBanks

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CommercialbanksCommercial

banksareauthorisedbythe

AustralianPrudentialRegulation

Authority(APRA)totakedeposits

fromthepublic.

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Theycollectthesavingsof

individualsaswellasbusinesses

andthenlendthosepooledsavings

tootherindividualsandbusinesses.

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Theyearnmoneybycharginga

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