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Flashcards in Topic 10 Deck (10)
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1

____________ consists of individuals, companies, markets, and governments that are involved in the process of exchanging financial assets.

The financial system

2

A ___________ is an institution that acts as a principal in accepting funds from depositors and lending them to borrowers.

financial intermediary

3

FINANCIAL MARKET

A market is an arrangement whereby participants buy and sell.

A _________ market is where securities are traded for the first time (e.g. Treasury notes sold by the RBA in tenders).

A _______market is where subsequent trading of securities occurs (e.g. sale of Treasury notes from one dealer to another in the money market).

primary

secondary

4

FINANCIAL INTERMEDIARIES

- In Australia, financial intermediaries are the dominant source of company finance.

- The ____________)_ have the largest share of the market, while the other key players are superannuation funds and life insurance companies.

- Intermediaries receive their income through a system of paying the savers one rate of interest and lending at a higher rate.

- The Australian financial sector is regulated by APRA, ASIC and the RBA.

domestic banks

5

BANKS

- Trading banks—includes activities such as deposits, loans, insurance, superannuation and stockbroking, usually through subsidiaries and affiliated companies.

- Retail banking—involves transactions with the __________.

- Wholesale banking—involves transactions with companies or businesses.

- Hold approximately 50% of the total assets of the finance sector in Australia

general public.

6

MONEY MARKET CORPORATIONS

- Have little direct involvement in the retail banking sector, as they are primarily concerned with _________.

- Responsible for the development of CMTs, rebatable preference shares, the commercial bills market, the promissory note market, the currency hedge market and the unofficial deposit market. Activities also include ‘investment banking’.

- Market share has decreased dramatically, from 16% in 1989 to around 3% now

wholesale banking

7

SUPERANNUATION and LIFE INSURANCE COMPANIES

- Crucial for the saving and provision of funds for retirement (_________), or ‘one-off’ events such as death, disability or trauma (insurance).

- Diversified operations includes general insurance, short-term money market dealing, and merchant banking.

- The superannuation industry is a growth area where approximately 98% of the funds are self-managed.

- Hold approximately 30% of market share.

superannuation

8

FINANCE COMPANIES

- Initially responsible for the provision of hire purchase and instalment credit, financing of vehicles and home loans, lease financing and factoring.

- Funds obtained mainly through the __________.

- Deregulation in 1980s led to many finance companies’ activities being absorbed by their large parent banks.
Market share now only approximately 6%.

issue of debentures

9

BUILDING SOCIETIES and CREDIT UNIONS

- Building societies
+ Traditionally provide housing finance to ________.
+ Diversified activities to include lending for other purposes.

- Credit unions
+ Pool the funds of people with common interests to provide consumer-type financing and lending to ‘members’.

- Both have very small market share, totalling approximately 2%.

small savers

10

UNIT TRUSTS

- Pool funds of _______ with the aim of earning a greater return collectively than that achieved individually.

- Cash management trusts
+ Operate by pooling investors’ funds into higher yielding short-dated securities normally restricted to large professional investors or corporations.
Equity trusts
+ Unit trusts where unitholders’ funds are invested in a range of shares in the stock market, either locally or overseas.

small investors