MAF 202 - Money & Capital Markets - Finance Assignment - Deakin Business School

Assessment Details

The Australian banking system was largely unaffected by the Global Fi-nancial Crisis (GFC) and fared well. A widely held view is that the re-silience of the Australian banking system stems from the regulatory struc-ture that underpins the financial system. Following is the excerpt from the Lowy institute article authored by Dr Andy Schmulow: ”Australia’s model for the regulation of the financial system – the Twin Peaks model – is being emulated world-wide. So-called because the model is characterised by two equal and independent peaks: the Australian Secu-rities and Investments Commission (ASIC) and the Australian Prudential Regulation Authority (APRA) at the advent of the GFC Australian banks were preoccupied with their home market and therefore less exposed internationally. The banks had a ’vanilla’ investment profile, which is to say they were less exposed to esoteric, highly leveraged and highly derived financial products. This is partly why Australia fared well during the GFC. Future adopters, with more internationally inter-connected banking systems, may fare worse under the same crisis conditions. Part II  Among others, Litterman and Schenkman (1991) demonstrated that three attributes of the yield curve - ”level”, ”slope or steepness” and ”curvature” - responsible for the performance of any fixed income instruments cover- ing the entire term-structure. Subsequent empirical and theoretical work widely support this argument. Part III Using the yield curves appended on pages 7 to 16, you will ex-plore yield curves in Australia and the Netherlands, including what they mean and why they compare as they do (provide any economic intuition for the shape)