Economics Extended Response Test Urgent! (1 Viewer)

[Fortian09]

I have an exam question that I have no idea how to interpret...
some ideas would be nice as i dun wanna copy other peoples essays...

the question:

Examine the contribution of financial markets to the functioning of the Australian economy and explain the consequences of the sub-prime loan crisis on idividuals, firms and the economy of Australia.

Some ideas would be helpful and i'll take it fromt here


Thanking you all for help

 

[maximilien101]

Ok well firstly, you can refer to the circular flow model where financial institutions play a role, where they become the mediator for savings and investment. As such this enabls individuals with surplus income (lenders) to save money in return for interest, and business or individuals seeking to borrow money to finance an investment or consumption to borrow off the bank.
secondly, under a floating exchange rate, such as Australia, Australia's trade and financial flows are mediated through the financial instition, the Forex market. This financial institution, the deregulation of the financial markets in 1983, has enabled, Australia's exchange rate in terms of another countries, to reflect inflation, international competitiveness..... As such, the foreign exhange market and banks provide fundamental and unique roles, that enable the smooth functioning of the Australian economy.