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Markets,
Financial markets create products that provide a return for those who have
excess funds, making these funds available to those who want/need money.
Financial intermediaries: are firms that receive the accumulated funds of individuals or
firms and then make other loans to other firms or individuals who can make use of these
funds. A bridge between savers and borrowers.
Factor markets for capital: markets where services of the factors of production (not the
actual factors of production) are bought and sold. Financial markets act as a factor
market for capital.
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Company Investor A Investor B
Shares Shares
Securities: are any form of financial instrument, including shares and bonds that provide
the holder of that instrument with a claim over real assets or a future income stream.
Australian Securities Exchange (ASX): is the major share market in Australia, where the
purchase and sale of most shares in public companies occurs. The share market brings
together people wishing to buy and sell shares to allow transactions to occur.
Financial Institutions:
Share: is a type of financial asset that provides an individual with ownership of a part of
a company or a business. Many rely on shares as a form of income.
Capital Gains: are the profits made by investors who sell their shares at a higher price
than originally bought at.
Float: occurs when a company lists itself on the stock exchange for the first time to the
general public.
Speculation: occurs when investors buy assets with the intention of reselling them for a
higher price within a short period.
Foreign Exchange Market: enable the movement of funds around the world- Aus was
open to this since 1983
Global debt Market: important for Australia’s economic development because of its
dependence on foreign borrowing.
Equity Market: regulated by national governments, such as the New York Stock
Exchange
Financial Regulators
Australian Treasury
Responsible for advising the government on financial security issues and
constructs legislative and regulatory framework for the financial system
Main source of economic policy advice for the government; fiscal policy
Influences budgets, method of tax collection, regulatory setting for financial
markets etc
Supply of Funds
Interest rates are the cost of borrowing funds expressed as a percentage of the
total amount borrowed (in other words, the cost of money)
Interest rate differential is the difference financial institutions charge between
the borrowing rate (return given to those who place funds in financial
institutions) and the lending rate (amount charged by financial institutions to
those who borrow funds) and is how they make profit