Question

a) The COVID-19 pandemic has led to the Reserved Bank of Australia (RBA) reducing the cash rate from 0.75% in February to the current 0.25% (as of May). Explain why the RBA had decided to reduce the cash rate.

b) Classify the following transactions as either:

                (i) Primary or secondary market

                (ii) Money or capital market

                (iii) Wholesale or retail market, and

                (iv) Direct or indirect market.

Transaction 1: You open a new savings account with ING Bank and deposits $2 000.

Transaction 2: An investor purchases $200 000 worth of St Barbara (SBM) shares on the ASX through the stockbroker.

c) The banks in Australia are the most important depository financial institutions and the most important financial institution within the Australian financial system. Discuss this statement. Include in your answer the role of banks in the financial system.

d) Mike is a 22-year old newly graduated nurse with no debt to his name. He is frustrated by the change in the interest he receives from savings, and has decided to invest his money and earnings elsewhere. Fortunately for him, he is an essential worker, hence his income will not be affected. As you are studying finance at Charles Darwin University, Mike came to you for investment advice. Justify the recommendations you would make to Mike

Answer 1