BAFI 3272 Money and Debt Markets Case study Analysis Assessment 2 Brief | RMIT University

Format:

This is a case study style of report where students are given a particular topic or issue and they respond in the style set out in Assessment details on Canvas.

The following structure is required for each case study for your report:

• Statement of problem or issue
• Interpretation and critical analysis
• Results of the research/recommendations
• Reference list

The rubric and the weighting for each Case Study are available on Canvas and follow the structure outlined above. The questions are prompts to guide the type of issues/analysis to address.

Case Study 1: Monetary policy (1500 words & 3 charts)

Description

Statement of problem or issue (Must only be year 2022 – 2024)

• The RBA charter is central to providing the context of this case study.
• What are the objectives of monetary policy in Australia?
• Source: https://www.rba.gov.au/monetary-policy/about.html
• What has been the main challenge for the Reserve Bank of Australia over the previous three years (2022-2024), and how did the bank deal with this?

Marking Rubrics: (15 marks) Identifies and demonstrates understanding of all the main issues in the case study and extends their analysis to identify and justify issues and problems beyond the expected main issues.

Interpretation and critical analysis (Must only be year 2022 – 2024)

• How does the Reserve Bank of Australia deliver changes in monetary policy?
• What indicators does the Reserve bank use to make policy decisions about the setting of monetary policy?
• How does the RBA make these decisions?
• What is the role of Open Market Operations in achieving the targeted cash rate?
• What are the mechanisms of monetary policy channels and the reasons for the movements in interest rates.
• Income (wages) and wealth (change in asset prices) effects and changes in consumer and business sentiment which affects spending and investment patterns.

Marking Rubrics: (20 marks) Demonstrates an ability to appraise and define problems in different contexts.

Reference list: Recommended, 4 references

• Reserve Bank of Australia, ‘RBA Statement of Monetary Policy”
• Textbook references: Viney et. al. and/or Kidwell – (Highly recommended)
• Video “Role of the Cash Rate” by RBA Governor
• Any other relevant source from academic, RBA or non-RBA articles

Case Study 2: Credit Ratings Agencies (CRA) – 1500 words, 3 charts Statement of problem or issue

• What issues emerged for the CRA’s during the Global Financial Crisis?
• Students should provide a brief overview of the circumstances of the Global Financial crisis, including, but not limited to:
• The asset bubble in the US and UK housing markets
• Asset quality issues for financial institutions and poor risk management practices and cheap financing and risk (e.g. low FICO scores for borrowers).
• Market greed and psychology of profits at all costs.
• Poor lending practices by lenders in those markets
• The role of securitisation in facilitating asset price inflation
• The role of the CRA’s in providing inaccurate ratings for securitisation structure CRA’s had:
• A significant proportion of their income contributed to rating securitisation transactions before the GFC.
• Used flawed rating models e.g. the “copula formula”, for rating securitisation structures.

Interpretation and critical analysis (it must be related)

• The analysis is to focus on the inherent conflict of interests of CRA’s, explaining this conflict. Students should analyse this point with empirical or anecdotal evidence.
• What are conflicts of interest, when might these conflicts of interest arise for CRA’s and how might they mitigate these risks? Discuss the effectiveness of the mitigants.

Results of the research/recommendations (it must be related to Interpretation and critical analysis)

1. There is no single clear solution to the issue of CRA conflict of interest and we expect a range of responses.
2. Student responses may pose a variety of solutions including, but not limited to:
3. A different model for rating remuneration e.g. investors should pay for the completion of the rating.
4. Government controlled CRA’s.
5. Regulators provide an independent assessment of the quality of ratings.
6. Financial penalties for significant errors in ratings
7. Duty of care legislation for CRA’s and Boards of CRA’s
8. What role could regulators play in the future in addressing conflicts of interest for CRA’s?