Financial Institutions, Markets and the Regulatory Environment
Institutions and markets
Candidates should distinguish authorised deposit-taking institutions, non-bank lenders, insurers, superannuation funds and investment banks, and explain their roles in channelling savings to borrowers. Understand primary versus secondary markets, money versus capital markets, and the roles of the Australian Securities Exchange, the Reserve Bank of Australia and the Australian Prudential Regulation Authority.
The regulatory framework
Know the objectives of the Corporations Act, the ASX Listing Rules and continuous disclosure, the role of the Australian Securities and Investments Commission in market conduct and consumer protection, and the purpose of the banking codes and the National Credit Code. Understand why prudential regulation exists: depositor protection, systemic stability and moral hazard control.
Monetary policy and interest rates
Explain how the Reserve Bank sets the cash rate to influence inflation and employment, and how changes transmit through lending rates, the exchange rate and asset prices. Know the term structure of interest rates, the risk–return relationship and the effect of inflation on real returns.
Traps to watch
Do not confuse ASIC (conduct) with APRA (prudential). Do not describe the ASX as a primary market only; it is chiefly a secondary market. Do not claim the RBA sets all interest rates; it sets the cash rate target. Distinguish regulation from legislation.
Worked example
If the cash rate rises from 4.10% to 4.35%, a bank funding costs rise and variable mortgage rates typically follow, slowing borrowing and spending. Rule of thumb: regulators supervise either safety and soundness or fair conduct, and questions reward naming which one and why.