Discuss how financial markets in Australia are regulated.

Essay by yuivyHigh School, 11th gradeB, October 2005

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Financial markets today play a significant role in the Australia economy. Financial market is a place where various financial instruments such as securities and bonds are traded. Like other traditional markets, financial markets provide a place for people who have excess funds and people who have the need for these funds to meet and trade. Exchange of funds is done through financial intermediaries. Financial intermediaries are firms that receive the accumulated funds of individuals or firms, which can then be lent out to other firms or individuals who can make use of them. Such financial intermediaries include both banks which form the majority and other non-bank financial intermediaries (NBFIs).

Since the 1980s, Australian financial markets have undergone two major changes in recent decades. The first change is done during the mid 1980s, which is the deregulation of the financial markets. This is done in order to increase the efficiency of the markets by removing government controls and exposing the industry to greater influence from the domestic and global markets forces, thus, increase the competitiveness of the Australian financial markets.

However, due to the dynamic natural of financial markets, prudence and care is needed in trading various financial instruments. As a result, during the late 1990s, an overhaul of financial regulation had been done to further increase the efficiency of the system by responding to changes to financial markets that have occurred since deregulation. Today, the Financial Services Reform Act 2002 oversees the entire financial markets in Australia. Under this Act, there are now three major regulators in the markets, the Reserve Bank of Australia (RBA); the Australian Prudential Regulation Authority (APRA) and the Australian Securities and Investment Commission (ASIC).

One of the most important regulators in the financial markets is the RBA. Due to the fact that it is...