Essay on Loanable Funds Market In Australia - 1919 Words

1. Introduction: The Reserve Bank of Australia is considering an increase in the target cash rate by 25 basis points in the near future. It is the intention of this report to analyse the positive and negative impacts of a rise in interest rates on the loanable fund market in Australia. In order to analyse the impacts of an increase in interest rates on the loanable fund market, the reasons behind the possible rate rise in the near future will be looked upon. Charts and diagrams have been used to illustrate the intention of this report and it is hoped that by looking at these vital elements the intended user will be able to understand the issue more thoroughly and follow the analysis behind it and get a clear understanding of the†¦show more content†¦When the Reserve Bank of Australia wants to lower the cash rate, it supplies more cash than the banks like to hold, as a result they will lend more money to money market resulting in a fall in the cash rate. And if they want to raise the cash rate they do the exact opposite. The main objective of the RBA is to control the cash rate, as by doing this they control inflation, which is vital for the economy’s wellbeing. 3. The loanable funds market in Australia: According to Viney (2005), Loanable funds are the amount of funds available within the financial system for lending. 3.1 The Loanable funds Model: In the loanable funds approach it is assumed that there is downward sloping demand curve for funds and an upward sloping supply curve for interest rates. The demand curve represents the demand for credit by borrowers and the supply curve represents the supply of credit by lenders (Evans,1999). Borrowers (represented by the demand curve) include consumer borrowers (credit cards, home loans, etc.), businesses of all kinds (corporate borrowing, trade credit, etc) (Evans, 1999). Source: Evans(1999) Lenders (represented by the supply curve in the loanable funds model) include direct lenders, such as banks, mortgage companies, credit card companies (Evans, 1999). The supply of loanable funds comes from those who spendShow MoreRelatedLoanable Funds Market in Australia1988 Words   |  8 Pages1. Introduction: The Reserve Bank of Australia is considering an increase in the target cash rate by 25 basis points in the near future. It is the intention of this report to analyse the positive and negative impacts of a rise in interest rates on the loanable fund market in Australia. In order to analyse the impacts of an increase in interest rates on the loanable fund market, the reasons behind the possible rate rise in the near future will be looked upon. Charts and diagrams have beenRead MoreEssay on Financial Institutions and Markets1788 Words   |  8 PagesFinancial Institutions and Markets 2.1 Outline the roles of the various monetary authorities that regulate the Australian financial system. What is the role of Council of Financial Regulators? In Australia, the role of monetary authorities is split between three independent statutory agencies with specific responsibilities in the Australian financial sector: 1. 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