GOVERNMENT POLICY Thank you for the opportunity to make a submission to your inquiry. We are particularly interested to take up your reference to the activities of highly leveraged institutions in financial markets and their implications for the stability of markets and the conduct of economic policies. These issues have been an important focus of the Bank’s work over the past year. They have also been important in the work being undertaken in international fora. The Bank has been actively involved in this work through various Working Groups of the Bank for International Settlements and the Financial Stability Forum. We have prepared two papers setting out our thinking on these issues. The first, The Impact of Hedge Funds on Financial Markets, describes Australia’s experience with hedge funds and discusses the impact of their activities on market prices and the integrity of markets. It also provides a summary of work that is underway on these issues in the international arena. The second paper, Hedge Funds, Financial Stability and Market Integrity, is a more general piece, and mainly looks at the issue from the point of view of the prudential risks that highly leveraged institutions pose for lenders and counterparties and, ultimately, financial syste
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