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Questions and Answers
What do financial institutions earn by acting as financial intermediaries?
What do financial institutions earn by acting as financial intermediaries?
In indirect financing, who are the ultimate borrowers?
In indirect financing, who are the ultimate borrowers?
What represents the difference between the average cost of funds and the average return from lending?
What represents the difference between the average cost of funds and the average return from lending?
What is the role of financial intermediaries with respect to economic units?
What is the role of financial intermediaries with respect to economic units?
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In the context of indirect financing, what is a primary security?
In the context of indirect financing, what is a primary security?
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What describes the primary financial markets?
What describes the primary financial markets?
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Why is it important not to confuse primary and secondary financial markets?
Why is it important not to confuse primary and secondary financial markets?
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What types of services do financial institutions provide?
What types of services do financial institutions provide?
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What is disintermediation in the context of finance?
What is disintermediation in the context of finance?
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How do financial institutions typically generate revenue from indirect financing?
How do financial institutions typically generate revenue from indirect financing?
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Which of the following is NOT a function of a financial institution?
Which of the following is NOT a function of a financial institution?
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Which type of financial institution primarily attracts savings through deposit accounts?
Which type of financial institution primarily attracts savings through deposit accounts?
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What is the primary characteristic of non-bank financial institutions?
What is the primary characteristic of non-bank financial institutions?
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What types of accounts do deposit-taking financial institutions usually offer?
What types of accounts do deposit-taking financial institutions usually offer?
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Which of the following represents indirect finance?
Which of the following represents indirect finance?
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Which type of revenue source is typically associated with direct financing?
Which type of revenue source is typically associated with direct financing?
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Which type of financial institution comprises more than 50% of the total assets of all financial systems?
Which type of financial institution comprises more than 50% of the total assets of all financial systems?
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What has contributed to the decline in percentage share of financial assets owned by building societies?
What has contributed to the decline in percentage share of financial assets owned by building societies?
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Which sector is identified as one of the fastest growing within the financial system?
Which sector is identified as one of the fastest growing within the financial system?
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What has led retail investors to move away from traditional forms of investment like bank deposits?
What has led retail investors to move away from traditional forms of investment like bank deposits?
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When did the Reserve Bank begin officially collecting statistics on mortgage originators?
When did the Reserve Bank begin officially collecting statistics on mortgage originators?
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What happened to mortgage originators following the Global Financial Crisis?
What happened to mortgage originators following the Global Financial Crisis?
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What major factor has influenced the growth of superannuation funds?
What major factor has influenced the growth of superannuation funds?
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Which type of financial institution has been recognized more recently as a significant player in the financial system?
Which type of financial institution has been recognized more recently as a significant player in the financial system?
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What characterized the Australian financial system before the 1980s?
What characterized the Australian financial system before the 1980s?
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During which decade were direct controls on the Australian financial system progressively removed?
During which decade were direct controls on the Australian financial system progressively removed?
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What was a major goal of government intervention in financial markets?
What was a major goal of government intervention in financial markets?
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In which period did the role of government change to a stronger form of intervention?
In which period did the role of government change to a stronger form of intervention?
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What are the macroeconomic objectives associated with government intervention?
What are the macroeconomic objectives associated with government intervention?
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How did government intervention change in nature after the 1980s?
How did government intervention change in nature after the 1980s?
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Which of the following is not a reason for government intervention in finance markets?
Which of the following is not a reason for government intervention in finance markets?
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What was a key feature of the financial system during the deregulation period?
What was a key feature of the financial system during the deregulation period?
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What type of financial institution typically does not provide loans or take deposits?
What type of financial institution typically does not provide loans or take deposits?
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Which regulatory body supervises credit unions in Australia?
Which regulatory body supervises credit unions in Australia?
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Which type of institution has the highest percentage share of total assets in the Australian financial system?
Which type of institution has the highest percentage share of total assets in the Australian financial system?
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How many building societies were reported in Australia as of June 2017?
How many building societies were reported in Australia as of June 2017?
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What percentage share do finance companies hold in the Australian financial system?
What percentage share do finance companies hold in the Australian financial system?
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Which of the following types of institutions is regulated by ASIC?
Which of the following types of institutions is regulated by ASIC?
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What is the role of non-deposit taking financial institutions?
What is the role of non-deposit taking financial institutions?
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Which financial institution is primarily involved with life insurance in Australia?
Which financial institution is primarily involved with life insurance in Australia?
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What is the total asset amount of superannuation funds as reported?
What is the total asset amount of superannuation funds as reported?
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How many general insurance companies are there in the Australian financial system?
How many general insurance companies are there in the Australian financial system?
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Which financial institution is primarily focused on investment and capital management?
Which financial institution is primarily focused on investment and capital management?
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Which of the following has the largest number of institutions in the Australian financial system?
Which of the following has the largest number of institutions in the Australian financial system?
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What is the total asset amount for cash management trusts?
What is the total asset amount for cash management trusts?
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What percentage share do health insurance companies hold in the Australian financial system?
What percentage share do health insurance companies hold in the Australian financial system?
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What type of institution does not fall under the category of deposit-taking institutions?
What type of institution does not fall under the category of deposit-taking institutions?
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Study Notes
Financial Services Overview
- Financial institutions provide a variety of services including financial advice, management, marketing, sales negotiation, and underwriting arrangements, for which they earn commissions or fees.
Indirect Finance
- Indirect finance, or intermediated financing, involves financial institutions as intermediaries between surplus economic units (savers) and deficit economic units (borrowers).
- Surplus units lend funds to financial institutions, which then lend those funds to borrowers, creating a borrowing-lending dynamic.
- Income for financial intermediaries comes from net interest margins and fees, representing profit from the difference between interest earned and interest paid.
- Primary securities issued by deficit units are held by financial intermediaries which then issue secondary securities to surplus units, lacking direct claims on each other.
Advantages of Financial Intermediation
- Financial intermediaries provide numerous benefits, enhancing access to funds for borrowers while pooling savings for efficient allocation.
- Securitization in secondary markets is less likely, as trading occurs primarily through secondary financial assets.
- A trend towards disintermediation observed as large borrowers increasingly utilize direct financing options.
Nature and Role of Financial Institutions
- Financial institutions focus on financial intermediation and offering various financial services.
- Revenue stems from net interest margins in indirect finance and fees in direct financing.
- Distinction between deposit-taking institutions (e.g., banks) that accept deposits and provide loans, and non-deposit-taking institutions (e.g., investment firms) that do not.
Current Institutional Features of the Australian Financial System
- The Australian financial system hosts a range of institutions categorized by their fund-raising practices.
- Banks, building societies, and credit unions play significant roles, with commercial banks controlling over 50% of total financial assets.
- A noticeable growth in superannuation funds and investment products like public unit trusts is noted, reflecting shifts in investor behavior away from traditional deposits.
Observations on Australian Financial Institutions
- Building societies and credit unions, despite having many individual institutions, maintain a low percentage of total financial assets due to conversions into banks.
- Life offices have seen a decline in market share while superannuation funds represent a fast-growing sector facilitated by government policy.
- Recognition of mortgage originators as financial institutions since the late 1990s, which are tied to the growth of housing loans and subsequent securitization.
Government Intervention in Financial Markets
- Government intervention in financial markets has evolved significantly over the past fifty years, transitioning through regulation, deregulation, and increased intervention post-deregulation.
- Regulation before the 1980s involved extensive control over banks, while the 1980s deregulation led to a more competitive financial environment.
- Post-deregulation intervention focused on strengthening market stability and safety, differing from previous regulatory norms.
Reasons for Government Intervention
- Key objectives include promoting economic growth, full employment, price stability, and external balance, demonstrating the significant impact of the financial system on national performance.
- Ensuring an efficient, fair, and competitive financial system remains a core rationale for government policy actions.
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Description
Test your understanding of financial services and intermediation. This quiz covers financial institutions, indirect finance, and the advantages of financial intermediation. Challenge yourself with questions that explore how financial intermediaries operate and their role in the economy.
