Question

In the face of the global financial crisis, Kevin Rudd introduced government guarantees on deposits. Discuss covering at least the following two parts:

1. An introduction/summary of the Government Guarantee.
2. The general impact of this policy to the efficient frontier based on the Australian environment.

(1 paragraph on each part) (2 + 2 = 4 marks)

Answer 1

a) Introduction/ Summary of the Government Guarantee - It refers to the Financial Claims Scheme (FCS) which provides protection to depositors of up to $250,000 per account-holder per authorised deposit-taking institution (ADI) (bank, building society or credit union) in the event of the ADI failing for 3 years. . This measure was taken when there was a global financial crisis in 2008.It aims to protect the depositor's money incase the bank falls.

b) Efficient frontier based - The efficient frontier is the set of optimal portfolios that offer the highest expected return for a defined level of risk or the lowest risk for a given level of expected return.When Global crisis occured, the prices of portfolios also came down.

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