Task 1. Research into one of Australia’s Financial Markets
The Australian Stock Market (ASX) has two main functions.
1. Primary market function: - to facilitate a company’s raising of funds by issuing shares (securities) to investors. Businesses wishing to expand and companies planning on setting up another business can raise money by issuing securities to investors. 2. Secondary market function: - is where investors buy and sell shares on the stock market. (Stock Market Investing , 2007) ASX review applications by companies wishing to be listed by taking into account the company’s history and finances. Each company listed must agree to obey ASX Listing rules (in aid of complying Government legislation and operating rules), and it is ASX’s job to supervise approved companies to make sure rules are followed. The shares are then listed available for trading on a network of computers on the electronic market. There are a number of Participants coming from different sectors that contribute to the Stock Market. They can be individuals or companies working independently or together. The Government (Reserve Bank of Australia) governs the ASX, and all sectors participating in the Stock market must comply with some or all legislation and regulations. Stoke brokers make applications to become an ASX Market participant, giving them access to the share market so they can buy and sell. (ASX, 2013) Regular people are not able to enter the Stock Market alone, so they employ a stock broker to facilitate there trading. (Stockbrokers.com.au, 2012) To follow all listing rules and operating rules both individuals are required to keep financial documents and may need the help of an Accountant. As well as individuals there are large companies and organisations that participate in the market: Insurance Companies: Issue contracts to ensure future payments if a certain event happens and use fees from this contract to invest in equities, debt and property. Finance Companies: Get funds by issuing debentures (documents that creates a debt, or acknowledges one used as a tool in short to medium term debt capital) (Wikipedia, 2013) and borrowing from the General Public. They provide short to medium term funds to a business, particularly leasing finance. Banks: The largest providers of funds to business and receives most of their funds through deposits. They provide a wide range of debt securities to a business. Merchant Banks: Get their funds by short term borrowing; mainly lend foreign currency and commercial bills to corporations. Companies: Often has surplus funds (money remaining after liabilities including tax) after operations. They invest funds and commercial bills and sometimes buy shares in businesses. (Farlex, 2012) Companies buying shares are in contact with people working within the Finance sector as well as the bank. Superannuation/Mutual funds: Receives funds from people preparing for retirement. As companies they invest funds and commercial bills and can buy shares in businesses. Government (Reserve Bank of Australia): Acts on behalf of the Government to ensure gaps in supply of funds are filled and works through the authorised dealers. (BikiCrumbs, 2006) Most of the participating organisations listed above have shares from their own businesses’ listed on the Australian Stock Market, making them a very large participant that is trading and selling all within the same financial market. There are a number of external forces having an impact on this financial market. Participants within the Australian Stock market are forever researching changes in the following: The Economy: The economy can highly impact on a company’s profits and the unemployment rate when in a recession. This decline in profits results in lower stock prices and generally will lower the stock market. When the economy climate is healthy, stock prices raise and companies make a higher profit. Government/ Political Changes: New...
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