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Foreign Currency Exposure (Survey of)
 
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    NAME OF ORGANISATION
    Australian Bureau of Statistics (ABS)

    OVERVIEW
    There has for some time been interest in the extent to which Australia as a whole, or particular sectors, have significant foreign currency net positions which make them vulnerable to unfavourable movements in the exchange rate.

    Although data, such as those published by the ABS in the International Investment Position, appear to show that some sectors of the Australian economy, such as banks, have significant net foreign currency liability exposure, many Australian enterprises engage in hedging activities which are designed to reduce or eliminate the risks associated with such exposures. The mitigating impact of these hedging activities does not show up directly in the statistics on foreign currency assets and liabilities.

    In an article "Foreign Exchange Exposure of Australian Banks", which was published in the August 2000 issue of the Reserve Bank Bulletin, the Reserve Bank of Australia (RBA) provided some data and analysis for Australia's depository corporations. Drawing largely on data collected by the Bank for International Settlements (BIS), which includes international investment data supplied by the ABS, the RBA noted that, as at December 1999, the net foreign currency liabilities of Australia's depository corporations represented around 13 per cent of this sector's total assets. Additional data collected for the four major banks showed they had no net foreign currency exposure, suggesting that they were hedged with other sectors of the economy and/or with non-residents. The lack of data on the net positions of these other sectors, however, made it difficult to draw any general conclusions from this work.

    Through the Survey of International Investment (SII), which follows international standards promulgated by the International Monetary Fund (IMF), the ABS collects data on the current market value of all derivative contracts with non-residents, including those entered into for hedging purposes. However, these data, by themselves, do not show the extent to which enterprises have hedged the net positions of their foreign-currency-denominated assets and liabilities. One way to obtain an approximate measure is to collect information on the notional value of derivative contracts. Such notional values currently are not required for any national or international accounting aggregates and, accordingly, are not collected as part of the SII.

    To obtain a more complete picture, the ABS, with funding assistance from the RBA, has supplemented the SII with additional information on foreign currency hedging from a wide range of enterprises, both financial and non-financial. The aim of the supplement was to capture quantitative and qualitative data about Australian enterprises' foreign currency exposure and the risk management practices associated with that exposure.

    To this end, information was requested about:

    • foreign equity assets;
    • foreign-currency-denominated financial debt assets and liabilities;
    • the notional value of outstanding derivative contracts with a foreign currency component;
    • the policies enterprises adopted on hedging foreign currency exposure; and
    • foreign-currency-denominated receipts and payments from trade in goods and services expected in the 12 months to 30 June 2002.

    PURPOSE
    The purpose of the proposed collection is to obtain information from respondents on the hedging of net foreign currency balance sheet positions by Australian residents.

    SCOPE
    In scope entities are all resident holders of foreign currency denominated liabilities and assets and all residents with future expected foreign currency denominated revenue and payments arising from the trade of goods and services. Conceptually the population will include public and private institutions as well as individual Australian residents. In the main they will include government agencies, depository corporations, other financial corporations, and non-financial corporations.

    The frame for the proposed survey will be derived principally from the Survey of International Investment (SII) frame. It will be supplemented, where necessary, by significant importers and exporters of goods and/or services as reflected in merchandise trade data and/or data collected through the Survey of International Trade in Services (SITS).

    DATA DETAIL

    Conceptual framework
    The conceptual framework for this collection is consistent with the framework applying to the quarterly Survey of International Investment (SII).

    The conceptual basis of the SII draws upon the recommendations of two international standards: namely, the fifth edition of the International Monetary Fund's (IMF) 'Balance of Payments Manual' (BPM5) and the 1993 edition of the 'System of National Accounts' (SNA93). The SII conceptual framework is described in the publication 'Balance of Payments and International Investment Position, Australia: Concepts, Sources and Methods, 1998' (ABS Cat No. 5331.0), which was released on 22 September 1998.

    Main outputs
    Results obtained from this supplementary collection are expected to be released to the general public via a special electronic publication in late October 2005.

    The Reserve Bank of Australia (RBA) will be supplied with customised tables containing the detailed data and information collected through the survey.

    The following five tables provide an indication of the basic quantitative data which will be made available to the RBA.




    Classifications
    The classifications used in this collection have been determined with the principal objectives of meeting user requirements (especially those of the Reserve Bank of Australia (RBA) and the Financial Accounts Section of the ABS); ensuring that, as far as possible, international recommendations (particularly those of the International Monetary Funds' (IMF) 'Balance of Payments Manual' (BPM5) and the System of National Accounts (SNA)) are adhered to.

    The principal classifications to be used are:

    Residency and institutional sector of counterparty

    • Non-resident
    • Resident
      • Banks
      • Other depository corporations
      • Reserve Bank of Australia
      • Other financial corporations
      • Central borrowing authorities
      • General government
      • Other resident sectors

    Types of derivative contracts
    • Forward foreign exchange
    • Cross-currency interest rate swaps
    • Futures
    • Currency options
    • Other derivative contracts

    Other concepts (summary)
    Other concepts focal to this collection are:

    Statistical Unit

    In keeping with the quarterly Survey of International Investment (SII), a number of different statistical units will be used in this collection. For the General government sector, the statistical unit will be a government department or agency. Other statistical units may be classified as trading and financial enterprises. The statistical unit for these entities will consist of all legal entities in an enterprise group that are classified to the same resident institutional sub-sector. Where an enterprise group spans more than one institutional sub-sector it is asked to report separate details for all entities in each institutional sub-sector.

    Concepts of territory and resident

    In keeping with the quarterly SII, in compiling the hedging statistics, the Australian economy will be conceived as being comprised of the economic entities that have a closer association with the territory of Australia than with any other territory. Each such economic entity will be described as a resident of Australia. Any economic entity which is not determined to be a resident of Australia will be described as a non resident.

    Australia's territory will be defined to include the territories lying within its political frontiers and territorial seas and international waters over which it has exclusive jurisdiction. It will not include Australia's external territories such as Norfolk Island.

    Valuation

    As with the quarterly SII, market price will be the principle of valuation in the hedging statistics. A market price is the amount of money that a willing buyer pays to acquire something from a willing seller, when such an exchange is between independent parties and involves only commercial considerations.

    In compiling these statistics, however, one or more of the above conditions needed to establish a market price for valuing a transaction may be absent. In practice, transactions are generally valued in international investment statistics using values recorded in the accounts of transactors. This basis is thought to provide the closest practical approximation to the market price principle.

    Levels of financial assets and liabilities are valued at their market value on the reference date.

    As the supplementary hedging data will be expressed in Australian dollars, it will be necessary to convert stocks expressed in foreign currencies to Australian currency. In principle, such stocks should be converted at the mid point of the buying and selling rate applying at the reference period. In practice the conversion rate used in the enterprise's accounts will be accepted, as it is not expected that this will differ significantly from the market price.

    GEOGRAPHIC DETAIL
    Australia

    Comments and/or Other Regions
    not applicable

    COLLECTION FREQUENCY
    Other

    Frequency comments
    The survey was conducted before for June 2001 and March 2005 as one off collections. There continues to be a possibility that the survey could become a triennial/4yearly collection subject to funding availability.

    COLLECTION HISTORY
    This cycle initiates a possible periodic collection of this type of data.

    DATA AVAILABILITY
    Yes

    Data availability comments
    Broad results obtained from this collection are expected to be released to the general public via a special electronic publication in late October 2005.
    The Reserve Bank of Australia (RBA) will be supplied with customised tables containing the detailed data and information collected through the survey.


    DATE OF LAST UPDATE FOR THIS DOCUMENT
    10/02/2009 02:39 PM



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