FPC001B Economic and Legal Context for Financial Planning Assignment Help
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The aim of this assignment is to prepare students to go through the FPC001B Analysis task and to be able to answer questions presented in this assignment.
FPC001B Assignment Help
The following questions are a continuation of the case study from the Analysis Task. Revisit the case study from the Analysis Task before reading the following case study update.
Case study 1: Purchasing a property and investing — continued
Jane has now decided that she wishes to invest part of her inheritance and has come back to you for further advice. Her visit was especially motivated by a recent plunge of the Australian dollar by over 20% against the United States dollar* and she was wondering if her objectives might need to change as a result of the current economic environment. Furthermore, being a lawyer, she wants to know what legal protections are in place that could be relied on to ensure she receives the most appropriate advice from you. On a somewhat unrelated note, Jane is also concerned about the financial wellbeing of her parents, Jill and Marcus Kurmond. They are both 62 years old and have recently had a discussion with Jane about their possible retirement aspirations. Jane suggested they get some advice from you as well, so that they may put some strategies in place enabling them to achieve their retirement goals. With their consent, she has collected the following information for you ahead of a meeting they have scheduled with you:
• Marcus is a construction worker and project manager, and his income before tax is $150,000 per annum. Jill works as an administrative assistant and earns $50,000 p.a. before tax.
• Marcus has a superannuation balance of $350,000 invested in a high growth fund. Jill’s superannuation balance is $120,000 and is currently invested in a growth fund.
• They own their home, purchased 20 years ago and currently worth $750,000. They have no dependents, no debt and have $150,000 cash in the bank.
• They would like to retire in four years’ time and will need $60,000 p.a. for living costs.
Question 1 Economic impacts on strategy (18 marks | Word limit: 600 words)
LO1: Explore the role of intermediaries in financial markets.
LO2: Explain the impact of current issues and key economic and financial indicators on the Australian and global financial markets.
Discuss how a rise in US interest rates might affect Jane’s three (3) objectives, as stated in the Analysis Task.
Identify and explain two (2) potential impacts on each of her objectives.
Q1
1. Is she able to buy her own property?
Potential impacts:
i. The U.S. Federal Reserve system is the most important reserve currency in the world, implying minor shifts in "the Fed" can have consequences across the world, particularly in regards to increases in interest rates. When interest rates in the States increase, Aussie banks must do the same to have sustainable pricing. The effect for Aussies is higher interest costs, financial risks and higher mortgage prices. By raising mortgage prices, Aussie bank will aim to suit their US counterparts. This implies that Aussie homeowners with lower initial mortgage rates would benefit the most from Federal Reserve adjustments.
ii. For Australia, increasing US interest rates are great option as they reflect a rapidly expanding economy that has significant spillover effect on world and Aussie prosperity. An increasing US interest rate also places the Reserve Bank of Australia (RBA) under threat to lift the cash rate. The RBA has, nevertheless, strongly shown that the Australian cash rate will not shift in lock-step with the US rate, and there is still surplus room on the Australian labor market currently. This contributed to decreasing wage growth and inflation below the medium-term target of the RBA.
2. Is it the right time to buy a property?
Potential impacts:
i. The US is not just a country, in terms of economics. It is the world's leading GDP economy,
with the strength and weakness of the US dollar being the foundation for global banks.
Q2
The Corporation Act 2001 lays out a common licensing system for financial transactions, advice and trading in financial goods, uniform and equal registration of financial assets, and a common authorization process for stock markets and payment and settlement services. The regulatory structure includes a broad variety of financial items, namely stocks, futures, life and health insurance, superannuation, margin financing, carbon products, bank accounts and forms of payment options. Regulatory guidelines on the future of financial advice (FOFA) legislation has been published. The objective is to continue to track the implementation of the applicable legislation, taking into account the current policy review of these regulations (ASIC, 2020). In the financial industry, regulators play a very significant part in facilitating the orderly functioning of the economy and preserving the stability of the financial system. Regulatory rates vary from country to country but there has been a growing movement across the world to strengthen financial sector supervision in an attempt to safeguard shareholders. There are also a number of foreign regulators who provide global standards and offer domestic regulatory authorities help and support.
The four big regulatory authorities in Australia are:
1. Reserve Bank of Australia (RBA)
2. Australian Securities and Investments Commission (ASIC)
3. Australian Prudential Regulation Authority (APRA)
4. Australian Competition and Consumer Commission (ACCC)
Question 3 Market impacts on strategy (20 marks | Word limit: 1,000 words)
LO2: Explain the impact of current issues and key economic and financial indicators on the Australian and global financial markets.
LO4: Examine some of the major issues currently facing the financial planning industry in Australia. Define ‘sequencing risk’ in relation to retirement planning and describe how market conditions over the accumulation phase of saving for retirement can affect retirement outcomes. How might this risk affect the retirement goals of Jane’s parents? Include in your answer the following:
• definition of sequencing risk, with examples
• ways to mitigate against sequencing risk
• brief analysis of Marcus and Jill’s financial situation
• implications of market impacts on Marcus and Jill’s desired retirement age and funding requirements.
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