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1301.0 - Year Book Australia, 2004  
Previous ISSUE Released at 11:30 AM (CANBERRA TIME) 27/02/2004   
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Contents >> Financial system >> Financial markets

Financial markets are used by participants to either raise funds (e.g. by issuing securities) or invest savings (by buying securities and other financial assets). The major markets in the Australian financial system include the share market, bond market and money market. Descriptions and tables indicating prices and activity in various financial markets are provided in this section.

A significant influence in financial markets is the participation of institutional investors controlling large pools of investment funds. These pools are accumulated by collective investment institutions and are often managed on a fee-for-service basis by investment managers. A summary of the activities of these institutions is also provided.

Credit market

Credit may be defined broadly as funds provided to those seeking to borrow. However, analytically useful measures of credit usually exclude borrowings by financial enterprises because their main role is as an intermediary, that is, they borrow in order to lend. Also, lending and borrowing between enterprises which have a special relationship, such as between companies in the same group or between government agencies, are often excluded from credit measures because transactions between these bodies frequently are of a non-market nature. Similarly, some types of financial instrument, such as trade debts, are not considered to be part of an organised market. All of these types of transactions are omitted from table 26.12, which presents a summary of the demand for credit in Australia by the non-financial sectors. It includes raisings by the issue of both debt and equity securities.

26.12 DEMAND FOR CREDIT(a)

Net transactions during year

2000-01
2001-02
2002-03
$m
$m
$m

Funds (including equity) raised on conventional credit markets by
Private non-financial corporations
68,274
18,018
31,793
National public non-financial corporations
4,072
1,302
-2,253
State and local public non-financial corporations
3,128
1,007
3,738
National general government
-9,524
-2,616
-4,131
State and local general government
-3,939
-509
-271
Households
43,439
78,780
95,365
Total
105,450
95,982
124,241

(a) Positive numbers indicate an increase in raisings. Negative numbers indicate repayment or redemption.
Source: Australian National Accounts: Financial Accounts (5232.0).

Stock market

The stock market is a mechanism for trading equities (shares), units in trusts, options, and some fixed-interest securities.

Operated nationally by ASX, which is responsible for the day-to-day running and surveillance of trading, the Australian system is electronic, conducted using the Stock Exchange Automated Trading System, allowing buyers and sellers to be located anywhere in the country.

ASX classifies listed companies according to their major activity and produces indexes based on these classifications. Table 26.13 summarises the performance of the major indexes over the last three financial years.

26.13 AUSTRALIAN STOCK MARKET INDEXES(a)

2000-01
2001-02
2002-03

All ordinaries
Index(b)
3,425.2
3,163.2
2,999.7
High(c)
3,425.2
3,440.0
3,205.4
Low(c)
3,094.3
2,867.5
2,673.3
S&P/ASX 200
3,490
3,216
3,026
Banks
9,447
9,940
9,514
Industrials
5,999
5,459
5,159
Resources
1,582
1,564
1,439

(a) Base 31 December 1979 = 500.
(b) Share prices on joint trading floors; June closing value.
(c) Over a 12-month period.
Source: Australian Stock Exchange; Reserve Bank of Australia; Standard and Poor's.

Table 26.14 shows the market value of Australian shares and units in trusts on issue - both listed and unlisted. It shows the amount on issue by sector of issuer and sector of holder of equities and units.

26.14 EQUITY MARKET(a), Amounts on issue - 30 June

2001
2002
2003



Listed
Unlisted
Listed
Unlisted
Listed
Unlisted
$m
$m(b)
$m
$m(b)
$m
$m(b)

Total equities and units in trusts
776,151
738,759
733,425
738,008
704,404
755,458

ISSUED BY

Private non-financial corporations
470,007
156,134
429,590
175,639
412,544
189,534
National public non-financial corporations(c)
69,224
8,444
59,960
4,854
56,501
4,908
State and local non-financial corporations(c)
-
98,998
-
92,131
-
92,062
Central bank(c)
-
12,265
-
11,399
-
11,678
Banks
170,873
7,255
181,323
8,384
174,080
7,064
Other depository corporations
145
20,125
227
24,943
363
31,535
Life insurance corporations
30,064
17,251
22,457
14,108
11,336
13,266
Other insurance corporations
10,371
14,713
8,905
16,883
14,896
16,120
Central borrowing authorities
-
30
-
87
-
30
Financial intermediaries
25,467
106,001
30,963
105,336
34,684
112,754
Rest of world
-
297,543
-
284,244
276,507

HELD BY

Private non-financial corporations
13,501
177,797
8,395
172,157
7,465
178,138
National public non-financial corporations
-
2,689
-
6,647
-
3,635
State and local public non-financial corporations
-
71
-
310
-
279
Banks
9,367
63,844
8,812
64,169
10,421
73,883
Other depository corporations
-
9,776
-
10,506
353
15,795
Life insurance corporations
58,212
49,453
58,554
52,111
48,851
58,883
Pension funds
120,959
102,933
117,211
106,081
117,232
108,456
Other insurance corporations
3,090
22,174
4,440
20,331
3,562
17,947
Financial intermediaries
65,634
43,244
59,724
43,707
50,819
48,687
National general government
34,682
20,978
30,040
16,541
28,307
16,879
State and local general government
-
100,619
-
92,609
-
91,655
Households
178,975
81,551
159,401
87,888
140,979
78,562
Rest of world
291,731
63,630
286,848
64,951
296,415
62,659

(a) Includes units in trusts.
(b) The unlisted estimated market values are considered to be of poor quality unless based on net asset values. They should be used cautiously.
(c) Net asset values.
Source: Australian National Accounts: Financial Accounts (5232.0).

Money market

Liquidity management by Australian corporations, financial institutions and governments is conducted through an informally arranged market for deposits, loans and placements and by issuance, purchase and sale of short-term debt securities. Rates in the market at end June of the last three financial years are shown in table 26.15.

26.15 SHORT-TERM MONEY MARKET RATES - 30 June

2001
2002
2003
% p.a.
% p.a.
% p.a.

11 am call
5.00
4.72
4.75
Bank-accepted bills-90 days
4.97
5.07
4.67

Source: Reserve Bank of Australia Bulletin.

Money market securities have an original term to maturity of less than one year, often 30, 90 or 180 days. They are issued by borrowers at a discount to face value and carry no income payment other than the repayment of face value at maturity. To enhance liquidity, money market securities conform to standardised attributes concerning risk and discount rates. Because of the standardisation, the securities of different issuers are often combined in the one parcel of securities for trading purposes. There are two types of securities: bills of exchange and one name paper (promissory notes, treasury notes, commercial paper and bank certificates of deposit), both of which are covered by the Bills of Exchange Act 1909 (Cwlth). The risk of default of a bill of exchange is reduced by an acceptor or endorser adding their name to the security for a fee. Most bills of exchange traded in the market are bank-accepted bills. Promissory notes are issued by institutions whose credit worthiness is equal to or better than banks; they are not accepted by a bank and unlike bills of exchange they are not endorsed by the parties which sell them in the market. The Australian Government issues treasury notes, state governments and large corporations issue commercial paper and banks issue negotiable certificates of deposit. Table 26.16 shows the amount on issue by sector of issuer and sector of holder of the various types of money market securities.

26.16 SHORT-TERM DEBT SECURITIES, Amounts outstanding - at 30 June

2001
2002
2003
$m
$m
$m

ISSUED BY

Private non-financial corporations
79,771
77,715
73,775
National public non-financial corporations
3,841
2,637
2,104
State and local public non-financial corporations
-
-
2
Banks
91,811
102,938
131,485
Other depository corporations
50,430
49,238
36,379
Life insurance corporations
702
475
4
Other insurance corporations
-
43
37
Central borrowing authorities
8,199
10,220
8,767
Financial intermediaries n.e.c.
22,031
25,306
24,385
National general government
5,290
4,477
246
Households
8,936
8,923
10,538
Rest of world
3,629
2,688
4,018
Total
274,640
284,660
291,740

HELD BY

Private non-financial corporations
23,784
18,703
27,418
National public non-financial corporations
779
797
495
State and local public non-financial corporations
182
126
36
Central bank
1,013
1,897
500
Banks
43,136
72,659
72,201
Other depository corporations
35,837
32,323
39,305
Life insurance corporations
14,861
15,552
17,113
Pension funds
18,218
16,541
20,644
Other insurance corporations
4,923
5,771
7,278
Central borrowing authorities
10,592
9,919
11,817
Financial intermediaries n.e.c.
26,686
22,030
15,660
State and local general government
315
533
209
Households
10,622
8,333
8,411
Rest of world
83,692
79,476
70,653
Total
274,640
284,660
291,740

Source: Australian National Accounts: Financial Accounts (5232.0).

Bond market

Bonds are issued with original terms to maturity of one or more years. Usually the investors are paid a set periodic interest, called a coupon, for the life of the bond and receive their initial investment back at maturity. Some bonds have variable interest rates, some have principal repayments indexed, and there are small amounts of zero-coupon or deep discount securities which are issued at a discount to face value. Governments, trading enterprises and financial institutions issue bonds to finance long-term requirements. For these entities, the bond market generally provides a cheaper source of funds than borrowing from banks and other financial institutions. Table 26.17 shows the market yields at the end of June of the last three financial years for a range of bonds.

26.17 BOND MARKET, Market yields - 30 June

2001
2002
2003
% p.a.
% p.a.
% p.a.

Treasury bonds
3 years
5.55
5.61
4.47
5 years
5.78
5.78
4.71
10 years
6.04
5.99
5.01
New South Wales T-corp bonds
3 years
5.88
5.79
4.64
5 years
6.13
6.04
4.89
10 years
6.24
6.29
5.20
Finance company debentures
2 years
5.20
5.45
4.10
3 years
5.45
5.60
4.20

Source: Reserve Bank of Australia Bulletin.

Historically, the main issuers of bonds have been the Australian Government and state governments, the latter through their central borrowing authorities. Corporate bonds are issued only by very large private trading and financial enterprises. In recent years banks and asset-backed security trusts have issued increasing amounts as government issuance has decreased. The amounts outstanding on bonds at end June of the last three financial years are shown in table 26.18.

26.18 BONDS, Amounts outstanding - 30 June

2001
2002
2003
$m
$m
$m

ISSUED BY

Private non-financial corporations
Issued in Australia
15,684
17,809
22,204
Issued offshore
36,109
33,572
38,407
National public non-financial corporations
Issued in Australia
3,387
4,976
3,013
Issued offshore
9,376
10,708
10,266
State and local public non-financial corporations
Issued in Australia
-
-
-
Issued offshore
-
-
-
Banks
Issued in Australia
25,783
26,735
24,713
Issued offshore
81,097
87,827
90,373
Other depository corporations
Issued in Australia
13,826
11,698
10,287
Issued offshore
15,362
16,277
24,975
Other insurance corporations
Issued in Australia
123
128
428
Issued offshore
74
-
334
Life insurance corporations
Issued in Australia
1,266
1,256
1,257
Issued offshore
1,313
968
789
Central borrowing authorities
Issued in Australia
54,136
52,998
54,509
Issued offshore
19,545
17,513
18,930
Financial intermediaries n.e.c.
Issued in Australia
30,723
42,529
51,645
Issued offshore
32,526
37,735
44,544
National general government
Issued in Australia
68,082
64,155
64,897
Issued offshore
1,314
1,449
1,439
State and local general government
Issued in Australia
430
306
304
Issued offshore
-
-
-
Rest of the world
Issued in Australia
-
-
-
Issued offshore
54,492
54,979
58,144
Total
464,650
483,620
521,460

HELD BY

Private non-financial corporations
7,916
7,202
6,215
National public non-financial corporations
1,457
372
124
State and local public non-financial corporations
200
71
26
Central bank
39,709
40,163
42,805
Banks
34,338
31,011
32,931
Other depository corporations
15,169
20,047
16,236
Life insurance corporations
41,311
38,789
38,579
Pension funds
34,988
38,542
40,499
Other insurance corporations
21,690
21,989
28,949
Central borrowing authorities
8,852
9,443
9,608
Financial intermediaries n.e.c.
26,356
28,178
29,739
State and local general government
274
315
575
National general government
9
15
22
Households
7,355
6,889
7,151
Rest of world
225,026
240,594
268,001
Total
464,650
483,620
521,460

Source: Australian National Accounts: Financial Accounts (5232.0).

Foreign exchange market

The foreign exchange market is the means whereby currencies of different countries can be bought and sold. In October 1983, the Australian Commonwealth decided to float the Australian dollar, allowing its value to be determined by market forces with few exchange controls and little Reserve Bank intervention. Prior to 1983, the Australian dollar was pegged to a basket of currencies which were weighted according to their trading significance to Australia. Table 26.19 shows the value of the Australian dollar against major currencies at end June of the last three financial years.

26.19 VALUE OF AUSTRALIAN DOLLAR, Against major currencies - At last trading day in June

2001
2002
2003

United States of America dollar
0.5086
0.5670
0.6700
United Kingdom pound
0.3623
0.3720
0.4074
Japanese yen
63.63
68.09
80.44
Euro
0.6070
0.5790
0.5907

Source: Australian Tax Office.

Currencies are traded for many reasons: because of exporting or importing requirements, investing or borrowing overseas, arbitraging (i.e. taking advantage of short-term discrepancies in rates) or speculating on possible exchange rate movements with a view to making a profit. Table 26.20 shows daily averages of foreign exchange turnover against all currencies.

26.20 FOREIGN EXCHANGE TURNOVER AGAINST ALL CURRENCIES, Daily averages(a)

2000-01
2001-02
2002-03
$m
$m
$m

Transactions by foreign exchange dealers(b)
Outright spot(c)
21,367
22,772
30,051
Outright forward(d)
5,094
6,407
7,424
Swaps
46,824
58,404
67,991
Options
3,103
4,832
6,289
Total
76,387
92,414
111,755

(a) Figures given are the average daily turnover for the financial year.
(b) Australian banks and non-bank financial intermediaries authorised to deal in foreign exchange.
(c) An outright spot transaction is one for receipt or delivery within two business days.
(d) An outright forward transaction is one for receipt or delivery in more than two business days.
Source: Reserve Bank of Australia Bulletin.


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