STUDENT ASSESSMENT
Apply Economic Principles to Work in the Financial Services Industry – FNSINC601
Instructions
You are advised to commence work on your assessment from week 1 and all tasks must be submitted by the due dates provided.
All assessments must be completed and delivered individually. Where an assessment involves group discussions, you should consider the input of your group but submit an individual assessment to your trainer.
Please read all instructions on completing each assessment. Instructions for completion are provided at the beginning of each assessment.
All written answers must be typed in a word document using Arial font, 12 size and single spacing if similar instructions are not provided in the assessment.
Your trainer will not be able to assist you in answering questions. However, your trainer will address any issues concerning questions requiring further explanation.
You may refer to your student learning resources or any other relevant resources when completing your assessment.
Assessments are due for submission as specified in the assessment schedule. Any variations to this arrangement must be approved by your trainer prior to the due date for submission.
You have access to computers which are equipped with Microsoft suite of products or any other relevant software and printing facility.
Use assessment templates if provided, to complete relevant sections of the assessment. You can also create your known templates for assessment evidence.
You must achieve a satisfactory result for all tasks to achieve competency in this unit.
All assessment answers should be submitted to the trainer in required format (soft or hard copy) as per trainer instructions with completed assessment cover sheet (if required).
Assessment Schedule
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Task |
Due Date |
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Task 1 |
Week 1 |
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Task 2 – Question 1 |
Week 2 |
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Task 2 – Question 2 |
Week 3 |
These materials were originally developed by Enhance Your Future Pty Ltd but may now be altered from the original form. Enhance Your Future Pty Ltd does not accept any liability for the Materials, the content and/or any reliance thereon.’
Task 1: Theory Assessment
Student Instructions
Type all the answers in a word document if required.
You can conduct internet research to answer these questions.
Provide explanation of 2-3 lines when answering ‘Describe’ questions.
Provide detailed workings for calculations questions.
Provide answers in table format wherever possible.
Answer the following questions in writing.
Outline key features of the following common economic theories that relate to the financial services industry:
Classical economics
Keynesian economics
Monetarism
Supply side economics
In terms of key features of macroeconomic theories, answer the following questions:
What are the main components of aggregate demand?
What is the expansionary fiscal policy? When might a government use expansionary fiscal policy?
What is concretionary fiscal policy? When might a government use concretionary fiscal policy?
What is the target rate of inflation set by RBA? Why does the RBA set an inflation target?
Why does a reduction in the cash rate (expansionary monetary policy) increase economic growth?
Explain how RBA increases the cash rate (contractionary monetary policy) and how does RBA lower the cash rate.
In terms of key features of microeconomic principles, answer the following questions:
What is scarcity of resources? How the scarcity of resources relates to financial services industry products?
What is law of demand and low of supply?
What does market equilibrium mean? How the equilibrium concept relates to financial services industry organisational practices?
Why does consumer’s price elasticity of demand for a good depends on the fraction of the consumer’s income spent on that good? What is the relation of this concept to financial services industry services?
What is the difference between a monopolistically competitive market and a perfectly competitive market? Which market form is significant at financial market services industry?
Explain capital adequacy requirements for banks in Australia, based on financial product mix.
In terms of asset pricing models, answer the following:
What is the security market line and how does it differ from the capital market line?
What does it have to do with the Capital Asset Pricing Model (CAPM)?
If a security is plotted above the security market line is it over-priced or under- priced? Explain what might happen is this situation.
How the CAPM use to identify organisational value and capital structures?
In terms of Portfolio Theory, answer the following:
What is the efficient frontier?
What are the two points that connect the capital market line?
What does the slope of the capital market line indicate?
Avoidable and unavoidable are common terms for investor risk. By what names do we also know these risks and which belongs to which?
In terms of valuation of assets, answer the following:
What is Net Present Value (NPV)?
What is Internal Interest Rate (IRR)?
How to use NPV and IRR rules to evaluate assets?
Identify five financial modelling techniques and tools and explain each one.
In terms of financial markets, products and service in Australia, answer the following with examples:
Bond
Commercial Bills and promissory notes
Debentures
Loans
Unfunded loan commitments
Letter of Credit
Yield curves
Identify and choose four relevant legislation, statutory requirements and/or industry codes of practice and explain the purpose of each one.
Identify and describe four techniques and/or tools for evaluation and interpretation of research data
Research and describe the current economic and political climate in Australia, relating to the financial services industry. Ensure you reference where you sourced your information i.e. add the website to your answer, however ensure your answer is in your own words.
Task 2: Case Study and Practical Assessment
Student Instructions
Type all the answers in a word document if required.
You can conduct internet research to answer these questions.
Provide explanation of 2-3 lines when answering ‘Describe’ questions.
Provide detailed workings for calculations questions.
Provide answers in table format wherever possible.
Question 1 – Scenario Analysis
Review the information provided various scenarios below and respond as per instructions provided.
How would each of following affect the market supply curve for wheat?
A new and improved cropping technique is discovered
The price of fertiliser increase
The government offers drought relief to wheat farmers
A drought hits a major wheat growing area.
Indicate, how you think each of the following would affect the market demand curve in the relevant market.
Incomes of buyers in the market for overseas vacations increases.
Buyers in the market for mobile phones read a study linking phone usage to brain tumours
Buyers in the market for CDs learn of an increase in the price of MP3 players.
Buyers in the market for CD players learn of an increase in the price of CDs
Use the demand-supply model to predict the followings:
What will happen to the equilibrium price and quantity of apples if the wage paid to apple pickers rises?
What will happen to the equilibrium price and quantity of childcare if there is an increase in the birth rate?
What will happen to the equilibrium price and quantity of cars if there is new law increasing the required level of car insurance?
The demand and supply of apple computers are described by the following equations: D(p) = 700 -100p and S(p)= -100 +100p
Define the equation of the inverse demand function.
Define the equation of the inverse supply function.
Represent the demand and supply functions in (Q, p) space diagram.
Calculate the equilibrium quantity and price of the computers.
Calculate the consumer surplus and producer surplus at the market equilibrium. What is the total surplus?
Suppose the advent of computers improves production of widgets by 20%. How would the supply function be affected? Show the changes in your diagram and calculate the new equilibrium values (Q, p).
The government introduces a new ‘get tough on drugs’ policy in which it will target the importers and dealers of drugs. There are two types of drugs – drug A and drug B. Drug A has an elastic demand in the relevant range. Drug B has an inelastic demand in the relevant range. Answer the following questions:
Analyse the effect of the new drug policy in the market for both drugs.
What would be the effect on total expenditure on each of the drugs?
Are your answers consistent with economic theory?
If the intent of the policy is to reduce the amount of drugs consumed, will the policy be successful?
What if the intent is to reduce drug related crime?
Billy can produce either good X or good Y. In one hour he can produce 4 units of good X. Alternatively, he can produce 2 units of good y in that hour. Sally can produce either 6 units of good x in an hour or 2 units of good y in an hour. Answer the following questions;
What is absolute advantage?
Who has the absolute advantage in producing X and which party has the absolute advantage of producing good Y?
What is comparative advantage?
Which party has the comparative advantage of producing good X and good Y?
A tennis ball factory pays $1000 a week in rent and $2000 a week in labour costs for its 5 staff members; assume all staff members are paid the same wage. The firm produces 1000 packs of tennis balls per week and sell them all to a tennis shop for $6 each. Work out the factory’s
Fixed cost
Variable costs
Average fixed cost
Average variable cost
Total costs and
Average total cost per week.
A firm in a competitive industry has fixed costs of FC=10, marginal costs of MC= 5+6q, and average variable costs of AVC(q) = 5+3q. Answer the following questions:
What are the firm’s variable costs (VC)?
What is the firm’s total cost function?
If the price is $35, how much does the firm supply?
Does the firm continue to supply this quantity in the short‐run? Explain.
David has $10000 in his bank account. He is deciding whether to buy a car or invest the money in the stock Market. Answer the following questions.
What is trade-off David is facing?
What is the opportunity cost of investing the money in the stock exchange?
What is the economic cost of purchasing the car?
Explain how much economic surplus would you receive from washing it?
A term deposit will be worth $2500 in 6 years’ time. It grows at a simple interest rate of 7% per annum. A Government bond will be worth $3600in 10 years’ time. It grows at a simple interest rate of 6% per annum. Calculate the present value of each and find out which is the better investment.
What will $1000 be worth in 5 years if invested at 8% compound interest p.a?
Tim is going on holiday. How much would he need to deposit in the bank now so that he can draw $2000 for each of next 6 months? He can earn 12% p.a payable monthly on his money.
Karen deposits $200 per month to her bank account. If she can earn 9% p.a payable monthly, how much will she have in total after one year?
Calculate the payback for the two mutually exclusive projects provided in ‘Payback Period Analysis’ document within Appendix.
Skyline enterprise is considering an investment project that will cost $230,000. It has an economic life of 4 years with no expected scrap value. Depreciation will be charged at $40,000 each year and the tax rate is 30%.
Complete the table ‘Cash Flow Analysis’ provided in Appendix
Using a cost of capital 10%, calculate the project NPV.
Cool ridge Water Ltd is considering investing in a new source of water that will cost $5000000. Cool ridge can get debt funding for new project. Currently Cool ridge has $4000000in debt funding and 16,000000in equity funding. The cost of debt is currently 6% and the cost of equity in currently 9%. After the new project the cost of debt will rise to 5.6% and the cost of equity will rise to 10%. Has shareholder wealth changed?
Answer the following questions:
Calculate the expected return for the following companies if the expected return on Government bonds is 10% and the expected return on the market portfolio is 18%.
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Beta Co-efficient |
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Company B |
1.1 |
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Company C |
0.8 |
Why are the returns obtained by these companies different?
Appendix
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Cash Flow Analysis |
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Question 2 – Research report
Choose an organisation within the financial services sector such as a banking institution or insurance company. This organisation can be one you have worked for or are familiar with or one that simply interests you.
Additional Information. Use the following links to conduct the required analysis for the report.
Authorised Deposit-taking Institutions Statistics: http://www.apra.gov.au/adi/Publications/Pages/ADI-statistics.aspx
Financial services regulatory outlook 2017: https://www2.deloitte.com/au/en/pages/financial-services/articles/regulatory-outlook-2017.html
2017 Financial Services Trends: https://www.strategyand.pwc.com/trend/2017-financial-services-trends
Financial and insurance services industry fact sheets: https://www.business.gov.au/info/plan-and-start/develop-your-business-plans/industry-research/financial-and-insurance-services-industry-fact-sheet
Undertake the following:
Briefly outline the organisation within the financial services sector you have chosen. Develop knowledge of the main macro- and microeconomics principles that may have relevant to your organisation. How would you apply them?
Explain how you would apply microeconomic theory of markets and influences on financial products and services to determine structure of organisation.
Outline the capital adequacy regulation and requirements you would be required to apply to work functions to your organisation.
Thinking about the organisation you have chosen, evaluate economic aspect that apply to decision making and:
Explain how you would apply relevant financial modelling techniques to economic data to inform decision making
How you would analyse and apply appropriate asset pricing models
Outline how you would apply models to determine organisational value in relation to capital structure
It is important to review your own work and maintain personal understanding of economic policies. Consider your current or role or a role you have previously had and complete the following:
Briefly outline the role and your responsibilities
Evaluate your own work within the role in the context of relevant economic principles
Explain how you could improve your performance through understanding how economics applies to your own decision making
Research current economic theories and their impact on the industry you have chosen to ensure relevant current knowledge
How could you integrate contemporary economic principles into your work practices?
References / recommended resources
Apply Economic Principles to Work in the Financial Services Industry – FNSINC601, Enhance Your Future.
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