QUESTION $12$

$8$ points

B$2-$ Problem solving

The Federal Government has received exceptional high royalties from mining companies. As a result the Federal government invests in $$190,000$ shares issued by Sweet Finance, a finance company $($transaction $1).$ Home Care Association had some of their cars destroyed by flood and needs urgently to buy new cars to be able to visit old pensioners in their home. Home Care Association takes a loan of $$210,000$ from Sweet Finance $($transaction $2).$

Sweet Finance and Home Care Association have their deposit accounts at Alpha Bank, an Australian commercial bank. The Federal Government has its deposit account at Omega Bank, another Australian commercial bank.

a$.$ Draw one diagram of flow of funds that includes transactions $1$ and $2.[$lgnore the purchase of the cars and the royalties. Clearly indicate the nature of the financial instruments, the financial markets if any used, the banks, the type of money involved, creation and destruction where relevant, and the name and status of the different parties $-$ SSU, DSU, financial intermediary and bank deposit manager$].$ Do NOT include the central bank. Each party should appear only once. No explanation is required.

$(4$ marks$)$

b$.$ Which components of the story constitute channelling of funds in the financial system and for which $ value? Do funds transit through a financial intermediary? Explain your answers in detail.

$(2$ marks$)$

c$.$ Could the story also involve direct finance and, if so$,$ under which conditions and for which $ value? Explain your answers in detail.

$(1$ mark$)$

d$.$ Does the story involve net change of private money in the payment system and, if so$,$ in which direction and which $ value? Explain your answers in detail.

$(1$ mark$)$

Fully or partially hand$-$write neatly your answers on a blank piece of paper or on a tablet, with your full name and student number at the top of the page $($hand$-$written$).$ Take pictures of your answers, convert them into a pdf file and upload the pdf file by selecting 'Browse your local files'. Only one pdf file can be uploaded per question so merge your pictures if needed. You can only show the answer of one question per file. Keep carefully the sheets with your hand$-$written answers and the files with your original pictures in case the course coordinator requires them after the exam.

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