Australain Financial System
fluctuates with the acquisition of stock
„X Short term finance for short time need
„X No costs ¡V If paid on time and supplier doesn¡¦t pass on.
„X If defer payment beyond credit terms (stretching) could damage credit reputation
„X Large cost in not accepting early settlement discount (and large cost in offering it!)
BANK OVERDRAFT
„X Allows the use of funds discretely
„X Low cost on overdraft amount as there is no limit
„X Service fees applicable
„X Can be called up by bank manager
FULLY DRAWN ADVANCE
„X Similar to overdraft of bank loan
„X Fully drawn on approval
„X Repayments include interest
„X Often > 12 months, hence can be Long Term finance as well
There are of course many other sources of short term finance but the two listed above would be the only two I would recommend to a small company. Other sources of short term finance are listed below:
„X Commercial Bills (bills of exchange)
„X Promissory Notes
„X Inter Company Loans
„X Hire Purchase
„X Leasing
„X Sale and Leaseback
„X Factoring of Book debts
The Role of Legislation in
the Financial Services Industry
1. The financial industry is heavily regulated. Why?
The financial industry is heavily regulated by legislation which has been passed to ensure:
„X The behaviour of financial institutions is regulated
„X The protection of consumers
„X Promotion of efficiency
„X Protection of individual investors
„X Depositors / investors can have confidence
„X Maintain credibility in the international financial scene
2. Briefly describe the four- (4) main regulators of Australian Financial Institutions.
The legislation is regulated or enforced by 4 major regulators.
1. Australian Securities and Investment Commission (ASIC)
ASIC administers the Corporations Law. Has comprehensive powers to ensure the finance markets act with integrity and that consumers are protected.
2. Reserve Bank of Australia (RBA)
Regulates the banking industry by:
„X Manipulating interest rates
„X Stabilizing the banks
3. Australian Prudential Regulation Authority (APRA)
„X Supervises banks, building societies, credit unions, friendly societies and superannuation funds.
„X Ensures these financial institutions minimise their risks so that depositors / members / policyholders have confidence in those financial institutions.
4. Australian Competition and Consumer Commission (ACCC)
„X Administer the Trade Practices Act and the Prices Surveillance Act
„X Promotes (and enforces) free competition, fair trading and consumer protection
3. Lee, a licensed financial adviser, has sent a recommendation to clients to invest in EMU Inc, an EMU farm. Lee does not disclose that a fee is received on every application made based on Lee¡¦s recommendation. Lee informs investors that the return on a $1,000 investment is likely to be 35%. The prospectus forecasts a return of 15%. Lee uses a photocopied application from the prospectus and asks investors to return this to him with a cheque. Lee does not provide prospectus unless the investor requests it.
Required:
A) What breaches does the corporations law relating to financial advisers has Lee made?
B) What remedies may an investor have who acted on Lee¡¦s recommendation and suffered a loss when EMU Inc went into liquidation?
Answer:
a) Lee has breached the conflict of interest provision.
Corporations Law regulates financial advisors by licensing to ensure unsuitable people do not become financial advisors. It also controls the conduct of advisors through conflict of interest provisions. ¡§know your client¡¨ [next page]