Please provide a solution to the below question. Australia is a leading country for gold mining, extracting

Please provide a solution to the below question.

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Australia is a leading country for gold mining, extracting gold from open-cut mines in the ground mainly from the state of Western Australia. The price of gold has been rising steadily, even when the share market was in turmoil during the GFC. The easier way for individuals to hold physical gold is to buy gold coins or gold bars and store them in a safe place, such as a bank vault. Another way to get direct exposure to gold without physically owning it is to buy gold certificates; gold certificates are notes issued by a company that owns gold. The company has the amount of gold to back all outstanding certificates. a. Assess whether physical gold in coins or in bars is a financial instrument. [Hint: Consider both parties required in a financial instrument and reflect who these parties would be in the case of physical gold, if any; can a gold mining company be the issuer? what income would it bring to an investor?]. Explain your answer in detail. (1 mark) b. Assess whether a gold certificate is a financial instrument. [Hint: Consider both parties required in a financial instrument and reflect who they would be in the case of gold certificate, if any; Represent how the balance sheet of the company that owns gold is affected when an individual buys a gold certificate from them. (1.5 marks) c. In the old times, gold coins were used as a mean of payment. Assume a "bank" in those times made a loan in gold and expected the principle and interest of the loan to be repaid in gold. Show how the bank's balance sheet is affected when the bank makes the loan in gold. Assess whether a bank created money (=gold coins) when they made a loan. Analyse the key difference with the current situation when banks make a loan nowadays. (1.5 mark) Australia is a leading country for gold mining, extracting gold from open-cut mines in the ground mainly from the state of Western Australia. The price of gold has been rising steadily, even when the share market was in turmoil during the GFC. The easier way for individuals to hold physical gold is to buy gold coins or gold bars and store them in a safe place, such as a bank vault. Another way to get direct exposure to gold without physically owning it is to buy gold certificates; gold certificates are notes issued by a company that owns gold. The company has the amount of gold to back all outstanding certificates. a. Assess whether physical gold in coins or in bars is a financial instrument. [Hint: Consider both parties required in a financial instrument and reflect who these parties would be in the case of physical gold, if any; can a gold mining company be the issuer? what income would it bring to an investor?]. Explain your answer in detail. (1 mark) b. Assess whether a gold certificate is a financial instrument. [Hint: Consider both parties required in a financial instrument and reflect who they would be in the case of gold certificate, if any; Represent how the balance sheet of the company that owns gold is affected when an individual buys a gold certificate from them. (1.5 marks) c. In the old times, gold coins were used as a mean of payment. Assume a "bank" in those times made a loan in gold and expected the principle and interest of the loan to be repaid in gold. Show how the bank's balance sheet is affected when the bank makes the loan in gold. Assess whether a bank created money (=gold coins) when they made a loan. Analyse the key difference with the current situation when banks make a loan nowadays. (1.5 mark)

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Answer a Physical gold in coins or bars can be considered a financial instrument to some extent While it doesnt fit the traditional definition of a fi... View the full answer