Question

1.Describe the changes that have taken place in the structure of the Australian financial system over the past 30 years (in terms of the relative size and importance of each category of financial institution).  Why do you think some of these changes have occurred? (You do not need to quote specific percentages – just indicate which categories have increased or decreased in importance.

2.Describe how an ADI determines the optimal mix of liabilities, and the strategies it can employ to attract both deposit and non?deposit funding.

Answer 1

In past 30 years rapid changes have occurred in the structure of Australian Financial System in terms of the relative size.There is significant shift in the market share mainly because of huge growth in assets and the volume of activities.The increased volume of activities are now highly competetive,open and innovative.The major reason behind such changes evolve number of institutions including banks,fund managers of unit trust and superannuation funds,etc.In 1970's when banks lost there major market share in the process of derugulation,the market share was reversed and hence,system moved towards more of innovations and competetative approach.Also introduction of the process known as unbundling which evolved around shifting the economies of banks traditional services lead to change in production and pricing policies.The change forced the banks to cut down the margin and cross subsidies.

Policy changes those occurred in taxations and compulsary contributions also lead towards changing the structure of the Financial System as whole.High returns on the compulsary contributions also added to the situation.