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Core 4 Economics Yr 11 Notes

Financial markets are essential for allocating funds between savers and borrowers, promoting economic stability and growth. They include various types such as share, debt, foreign exchange, and derivatives markets, each serving specific functions like liquidity provision and risk management. Regulatory bodies like APRA and ASIC oversee these markets to ensure stability and protect investors.

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18 views2 pages

Core 4 Economics Yr 11 Notes

Financial markets are essential for allocating funds between savers and borrowers, promoting economic stability and growth. They include various types such as share, debt, foreign exchange, and derivatives markets, each serving specific functions like liquidity provision and risk management. Regulatory bodies like APRA and ASIC oversee these markets to ensure stability and protect investors.

Uploaded by

siddharth.muppala1
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We take content rights seriously. If you suspect this is your content, claim it here.
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Economics Core 5: Financial Markets

The Role of Financial Markets


Financial markets facilitate the allocation of funds between savers and borrowers, contributing
to economic stability and growth.

Types of Financial Markets

1.​ Share Market: Trades company shares (e.g., Australian Securities Exchange - ASX).
2.​ Debt Market: Involves bonds and loans for raising capital.
3.​ Foreign Exchange Market: Facilitates currency trading and exchange rate
determination.
4.​ Derivatives Market: Trades contracts based on the value of underlying assets.

Functions of Financial Markets

●​ Liquidity Provision: Allows investors to buy and sell assets quickly.


●​ Price Determination: Establishes asset values based on supply and demand.
●​ Risk Management: Enables hedging against price fluctuations.
●​ Efficient Resource Allocation: Directs savings to productive investments.

Financial Institutions

●​ Banks: Accept deposits, provide loans, and facilitate transactions.


●​ Investment Firms: Manage assets and provide financial advisory services.
●​ Superannuation Funds: Invest retirement savings for long-term growth.
●​ Reserve Bank of Australia (RBA): Regulates monetary policy and stabilizes financial
systems.

Interest Rates and Monetary Policy

●​ Cash Rate: Set by the RBA to influence borrowing and lending rates.
●​ Monetary Policy Tools:
○​ Expansionary policy: Lowers interest rates to encourage spending.
○​ Contractionary policy: Raises interest rates to control inflation.

Global Financial Markets

●​ Exchange Rate Fluctuations: Affected by trade, inflation, and interest rates.


●​ International Financial Institutions:
○​ International Monetary Fund (IMF)
○​ World Bank
○​ Bank for International Settlements (BIS)

Government Regulation of Financial Markets

●​ Australian Prudential Regulation Authority (APRA): Oversees banks and financial


institutions.
●​ Australian Securities and Investments Commission (ASIC): Regulates corporate
finance and investor protection.
●​ Australian Competition and Consumer Commission (ACCC): Ensures fair market
competition.

Conclusion
Financial markets play a crucial role in economic development by facilitating capital flow,
investment, and risk management. Regulatory bodies ensure stability, transparency, and
investor protection, shaping the overall efficiency of financial systems.

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