Capital Mrket Assignment Example | Topics and Well Written Essays - 500 words

Capital Mrket - Assignment Example It is arguably better if RBAs maintain the cash rate as compared to the federal government simply setting the cash rate. One of the reasons why it would be better if the RBAs are allowed to maintain the cash rate is because they are better in responding to pressures in their money markets. This is because of the Australian flexibility in frameworks for operating open markets within the country. The bank is therefore best suited to respond to pressures within the market more promptly and seamlessly with minimal alterations within the operating framework. RBAs method of trading in the money market to maintain the cash rate is again better than if the federal government simply set the cash rate because banks carry out their open market operations everyday. This ensures offset of smooth flows between the government and the private banking system. It also ensures that there are enough funds to operate within the market and adequate cash rate to maintain target. This, the bank operates by predominantly employing (repos) repurchase agreements, in which it buys a security with the agreement that it would sell bank in future at an agreed price (Felmingham 1995, p. 114). Unlike the federal government, the bank in this case can, and has been able to operate at a deal of a variety of terms and discriminatorily against a range of collateral classes. The official cash rate is a term that is used in both New Zealand and Australia for the bank rate to refer to the interest rate that is charged by the central bank to commercial banks on overnight loans. This gives the Reserve Bank of Australia the ability to adjust to the interest rates of the country’s economy. An additional advantage of the RBAs maintaining cash rate over the government setting cash rate is that the bank, unlike the federal government, can settle all interactions within banks immediately. The bank is