This publication presents results in respect of 31 March 2005, from an Australian Bureau of Statistics (ABS) survey of Australian enterprises with exposure to foreign currency. The survey sought to cover all enterprises with significant foreign currency denominated balance sheet items and/or significant expected foreign currency denominated receipts and payments from trade. The information collected included foreign equity assets, foreign currency denominated debt assets and liabilities, foreign currency denominated receipts and payments from trade expected after 31 March 2005, the principal value of outstanding currency derivative contracts and policies on hedging foreign currency exposure.
The survey was conducted by the ABS, with the assistance of the RBA, to provide additional information to that available in the International Investment Position, on the mitigating impact of hedging activities on foreign currency exposures.
This survey was conducted previously in June 2001, with results released in a special article in the December quarter 2001 issue of Balance of Payments and International Investment Position (cat. no. 5302.0).
Where figures have been rounded, discrepancies may occur between the sum of component items and the total.
For further information about these and related statistics, contact the National Information and Referral Service on 1300 135 070 or Wendy Raedt on Canberra (02) 6252 6171.
FOREIGN CURRENCY EXPOSURE
As at 31 March 2005, Australian resident enterprises had a net long foreign currency exposure of $217.6b after taking account of hedging through the use of foreign currency derivative contracts, an increase of $68.6b on the 30 June 2001 exposure. However, data between the periods are not directly comparable due to an increase in scope and coverage for the 2005 survey (see paragraphs 2 and 4 of the Explanatory Notes).
The net long foreign currency balance sheet position as at 31 March 2005 was $91.9b, an increase of $27.9b on 30 June 2001. This was made up of an increase in foreign equity assets of $115.2b, an increase in foreign currency denominated debt assets of $57.2b and an increase in foreign currency debt liabilities of $144.5b.
The net long foreign currency exposure before hedging, including expected foreign currency denominated receipts and payments from trade, as at 31 March 2005 was $95.8b. No equivalent data is available for 30 June 2001.
FOREIGN CURRENCY EXPOSURE BY SECTOR
Banks had an expected net foreign currency exposure before hedging of -$152.5b. After accounting for hedging through the use of foreign currency derivative contracts, the net foreign currency exposure was significantly reduced to $0.8b.
The RBA's net foreign currency balance sheet exposure is $43.8b, and after accounting for derivatives, the exposure is $22.4b.
Other financial corporations had a net foreign currency exposure before hedging of $113.7b. After hedging, this was reduced to $98.5b.
Central borrowing authorities and general government had a net foreign currency exposure before hedging of -$5.8b, which was reduced to -$2.5b after hedging.
Other resident sectors had an expected net foreign currency exposure before hedging of $96.6b. This was the only sector to increase its foreign currency exposure after undertaking hedging activities, contributing $98.5b to the total net foreign currency exposure.
Australian resident enterprises predominantly used forward foreign exchange derivative contracts in their management of foreign currency exposure. Cross currency interest rate swaps made up the bulk of other types of derivatives. These two products accounted for 60.8% ($750.4b) and 26.7% ($329.6b) respectively of the principal value of outstanding foreign currency derivative contracts where foreign currency is bought in exchange for Australian dollars. Similarly, forward foreign exchange derivative contracts and cross currency interest rate swaps accounted for 67.1% ($746.8b) and 18.3% ($204.1b) of the principle value of outstanding foreign currency derivative contracts where foreign currency is sold in exchange for Australian dollars. No product information is available for foreign currency derivative contracts where one foreign currency is exchanged for another foreign currency.
The net effect of bought ($1,806.2b) and sold ($1,684.4b) derivative contract principal values was that there was hedging against $121.8b of Australian resident enterprises' foreign currency exposure.
HEDGING POLICY AND PRACTICE
As part of the survey, providers were asked to identify the hedging policies they had put in place for their foreign currency denominated equity assets, debt assets and liabilities and expected foreign currency denominated receipts and payments from trade. The responses related only to hedging using foreign currency derivatives and did not refer to any natural hedging or strategies which involved structuring the balance sheet in order to reduce foreign currency exposure.
Providers were also asked to nominate the percentage of their foreign currency denominated positions they were aiming to cover with each of the different type of policies.
The predominant policy adopted by all sectors for hedging foreign equity assets was "no hedging", with $218.1b (63.5%) of total foreign equity assets not hedged. Banks had zero-hedged foreign equity assets of $19.4b, other financial corporations had zero-hedged foreign equity assets of $54.7b and other resident sectors had zero-hedged foreign equity assets of $143.8b.
Values of foreign equity assets have been multiplied by the nominated percentage to be hedged. The resulting value of hedged foreign equity assets was $72.0b, indicating 20.1% was hedged across all sectors. However, levels hedged varied considerably between sectors, with banks hedging $9.7b (29.4%), other financial corporations hedging $60.0b (37.4%) and other resident sectors hedging $2.2b (1.5%).
For all sectors the main policy applied to hedge foreign equity assets was "hedging a constant percentage", with $55.2b (76.7%) of total hedged foreign equity assets hedged under this policy. Only two other policies applied to hedging of foreign equity assets; "varying the level of hedging with changing conditions" and "other".
The main policy applied to hedge gross debt assets and liabilities, was "hedging a constant percentage", with $433.0b (63.8%) of gross debt assets and liabilities subject to this policy.
Values of foreign debt assets and liabilities have been multiplied by the nominated percentage to be hedged. The value of gross debt assets and liabilities hedged was $535.8b, indicating 78.9% was hedged across all sectors. Of this, $412.2b (76.9%) of the total hedged debt assets and liabilities was hedged under the "hedging a constant percentage" policy.
EXPECTED FOREIGN CURRENCY DENOMINATED RECEIPTS AND PAYMENTS FROM TRADE
Expected foreign currency denominated receipts and payments from trade as at 31 March 2005 were $92.7b and $88.8b respectively. These receipts and payments are predominantly due from/to non-residents, with expected receipts from non-residents totalling $91.0b (98.2%) and expected payments to non-residents totalling $87.1b (98.1%).