Discuss how financial markets in Australia are regulated by the Reserve bank of Australia, the Australian Prudential Regulation Authority and the Australian Securities and Investments Commission.

Essay by kalorfulHigh School, 11th gradeA+, November 2006

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Financial markets are an important component of Australia's economy. They provide a return for those who have extra income, while at the same time making loans available those who need additional funds. They influence all other industries because of their key role in the economy. To protect the overall economy and the individual sectors, there are three major regulators of financial markets; RBA, APRA, and ASIC.


The Reserve Bank of Australia is one of the most important regulators of financial markets. It is the central bank of Australia, and it is not set up for financial profit. Its purpose is to manage the financial sector according to three objectives set by the Reserve Bank charter - stablility of Australia's currency, maintenance of full employment and the economic prosperity and welfare of the people of Australia. The RBA plays significant roles in regulating the financial market by conducting monetary policy on behalf of the government; systemic stability; control of note issue; regulation of the payments system; banker to the banks; responsibility for holding Australia's reserves of gold and foreign currency dealings; banker and source of financial and economic advice to governments.

In recent years, its major aim has been to sustain low inflation.

The RBA influences inflation by undertaking DMOs, or Domestic Market operations. This is the mechanism in which the RBA controls the interest rates and thereby influences the rate of inflation. The RBA either purchases or sells Government securities, which leads to the consumer selling of their previous securities or buying new ones. If the consumer purchases new securities, this action reduces the amount of money in the M3, leading to a movement to the left in the supply curve of money, raising the equilibrium level of interest rates. The opposite happens when the consumer sells off...