a) What type of market do Australian Banks operate in?
Australian Banks are in a competitive type ofmarket
How has the GlobalFinancial Crisis affected competition in this market? Explain your answer.
The global financial crisis has affected the market negatively in various ways.
· Inflation experienced resulted to a rise in interest rates.
· The Australian government is forced to guarantee deposits in all financial institutions.
· There is an increase in financial markets and global growth prospects were deteriorating.
· The bank default rate on loans rises because of poor mortgage prices, therefore borrowers started to fall in arrears in payments of mortgage loans while some walked away from their debt that had accrued to more than their home value (Sowell, 2010).
· Due to the financial crisis Australian household net savings rate was affected negatively.
· The impact on Australia intensified where institutions that relied heavily on financing, especially from offshore could not survive because they found it further and further expensive to do a refinancing of maturing debts(Sowell, 2010).
· Increased funding margins for Australian and international banks also led to a general widening of credit outside financial sector. The spread widening injured overall performance due to fixed income of Australian
· The stock and forex market also suffered, this is because the present investors pulled out of the Australian market while potential investors had no confidence investing in an economy where they were not guaranteed of good returns (Sowell, 2010).
· Real economy was affected by tighter lending standards, weak consumer confidence and forecast of a slow demand for Australian commodities internationally.
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