Question

CONTEMPORARY ISSUES IN FM

1) In response to the COVID-19 pandemic, Australian government implements numerous policies to provide economic support to the Australian economy. Briefly discuss the role played by the Australian government to rescue the economy.

2) On April 7th, 2020, Fitch Ratings Inc. downgrades Australia's four biggest banks credit ratings. How does this affect borrowers, lenders, and financial institutions? What are the implications of this downgrade to the health of the financial system?

Answer 1

1. Role played by Australian government to rescue the economy are as follows-

A. Australian government has cut down the taxes on the common individual and it has led to relaxation of the expenditure of the individuals.

B. Australian government has also try to formulate fiscal policy in such a manner that will protect the interest of various sections of the society

C. Australian government has also provided various kinds of supportive credit facilities to various organisations which are facing a risk of survival in the long run due to coronavirus crisis.

D. Australian government is also trying to roll out the bailout program in order to support the economy which will help various sections of society to lower their burden at the time of the coronavirus crisis

E. Australian government is also formulating the fiscal policy in order to synchronise with the monetary policy of the central bank in order to stabilize the economy.

2. when the four biggest banks of Australia has been rated down by the credit agency it will mean that there will be a risk related to availability of the credit in the economy as there would be a risk of financial failure as major bank will collapse then there will be a risk of complete financial contagion which can shut down a large number of small companies and hence there need to be a proactive measures in order to manage with risk associated with downgrading of the largest Banks of Australian economy.

It will also mean that there will be a downgrading of the financial system of the Australia as there will be a risk related to investment in the financial system and it can even cause a bank Run because these are the 4 largest bank then the people will be very sceptical to keep their money in the market and they will be trying to withdraw the money and hence it can lead to a overall financial problem if it is not managed effectively so it can be leading to risk related to the market participants and it will not lead to any help for the financial system due to downgrading of the banks and it is better to manage it proactively in order to avoid any kind of financial collapse.