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TASK/Assignment Critically analyse the following research question (plus include DIAGRAMS, GRAPHS and TABLES): Banks do not adjust their lending rates immediately when the Reserve Bank reduces the interest rate. This action suggests that commercial - Essay Example

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Having the ability to account for several trillions in terms of assets across the world, the banking systems can be described as the single most crucial component that drives and sustains the economy of the entire globe. It is important to understand that banks make up an…
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TASK/Assignment Critically analyse the following research question (plus include DIAGRAMS, GRAPHS and TABLES): Banks do not adjust their lending rates immediately when the Reserve Bank reduces the interest rate. This action suggests that commercial
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Extract of sample "TASK/Assignment Critically analyse the following research question (plus include DIAGRAMS, GRAPHS and TABLES): Banks do not adjust their lending rates immediately when the Reserve Bank reduces the interest rate. This action suggests that commercial"

Download file to see previous pages ssified as very important and essential financial intermediaries, such that they bridge the gap between borrowers that often need capital for their investments and depositors, who play the role of capital suppliers (Pennington & Thornton 2010, p. 55). Because of the individual wealth in terms of assets and the commerce that the banking sector assists and oversees, banks have become the most heavily and highly regulated business across the world.
The need to regulate the functions of banks stems from the fact that they are key to the growth of the Australian economy. In this regard, policy makers and economists try as much as possible to devise policies and regulations that ensure a healthy banking sector that spurs business activities and other forms of investment in the country. By so doing, a country is able to regulate the flow of money as well as other economic activities in the country (Boubakri 2011, p. 35). This process is often achieved by the central or reserve bank implementing various monetary policies such as changing the interest rates.
Yet, “Banks do not adjust their lending rates immediately when the Reserve Bank reduces the interest rate.” It is argued by some that banks don’t decrease interest rates because they will reduce their profits in the process. In actual sense, this process is a total disregard of the RBA’s directive of reducing interest rates in order to encourage domestic and international investments in the country.
This paper CRITICALLY examines the effectiveness of the Australian Reserve bank to regulate banks to adjust their interest rates that is in the best interest of the Australian economic environment. The first section discusses about RBA and its modes of operation in respect to monetary policies and money markets, the final section of this paper will explain why banks often fail to adjust their interest rates as directed by the Australian Reserve Bank
In order to discuss the reasons why other banks do not always ...Download file to see next pagesRead More
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