Question

(a) Discuss how investment banks operate, how they function in our financial system, and how they earn money and the importance of investment bank’s reputation to its survival.

(b) Explain how Reserve Bank of Australia (RBA) retain control of interest rates. Explain which of the methods are more suitable in the current COVID-19 capital market.

Answer 1

a) Investment banks are a very important linkage in the financial markets of the world. They have two primary functions

1) Help companies raise money from the capital markets

2) Help companies with identifying and acquiring companies

They earn money as commissions from their clients on every particular deal

Their reputation is what attracts clients to sign up for a deal, and if that is tarnished for any wrong-doings, then the markets will stop doing transactions with them

b)

The Reserve Bank of Australia (RBA), will control interest rates by raising it or cutting them as and when they deem prudent.

But to deal with Covid 19 crisis, instead of just a monetary policy push, a fiscal push from the central government by putting money in the hands of the people will be the best way to deal with the crisis