1301.0 - Year Book Australia, 2002

ARCHIVED ISSUE Released at 11:30 AM (CANBERRA TIME) 25/01/2002

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Contents >> Financial System >> Financial markets

Financial markets are used by participants to either raise funds (for example, 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, i.e. 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
	Net transactions during year
	1998-99 $m	1999-2000 $m	2000-01 $m

Funds (including equity) raised on conventional credit markets by
Private non-financial corporations	50,795	66,787	56,720
National public non-financial corporations	354	18,338	3,285
State and local public non-financial corporations	-446	941	2,878
National general government	-8,973	-10,951	-9,592
State and local general government	-3,149	-3,361	-3,915
Households	42,763	60,405	43,648
Total	81,344	132,159	93,024

(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 Australian stock market provides a mechanism for trading equities (shares), units in trusts, options, and some fixed-interest securities through a network of computers with buyers and sellers located anywhere in the country.

It is operated nationally by Australian Stock Exchange Limited (ASX), which is responsible for the day-to-day running and surveillance of stock market trading. Trading is electronic, conducted using the Stock Exchange Automated Trading System.

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)

	1998-99	1999-2000	2000-01

All ordinaries
- Index(b)	2,963.0	3,115.9	3,352.4
- High(c)	3,145.2	3,274.1	3,370.7
- Low(c)	2,458.2	2,779.7	3,094.3
All industrials
- Index(b)	5,199.7	5,458.3	5,741.8
- Hig (c)	5,583.6	5,823.0	5,789.8
- Low(c)	4,271.2	4,786.3	5,293.3
All resources
- Index(b)	1,181.5	1,252.1	1,546.3
- High(c)	1,267.2	1,470.6	1,645.4
- Low(c)	902.4	1,122.2	1,288.0

(a) Base 31 December 1979 = 500. (b) Share prices on joint trading floors; average of daily figures for June. (c) Over a 12 month period.
Source: ‘Shares’ magazine (BRW Media); Reuters data service.

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 THE EQUITY MARKET(a)
	Amounts on issue at 30 June


	1999 $m		2000 $m		2001 $m
	Listed	Unlisted	Listed	Unlisted	Listed	Unlisted

Total equities and units in trusts	635,482	550,437	743,516	655,584	776,160	717,476

ISSUED BY

National public non-financial corporations	111,387	9,662	87,314	8,509	69,224	8,444
State and local non-financial corporations	-	105,699	-	103,145	-	98,782
Private corporate trading enterprises(b)	368,076	137,340	455,138	160,402	473,278	184,112
Central Bank(c)	-	10,913	-	10,446	-	12,265
Banks(b)	107,675	5,016	134,179	4.049	170,873	6,404
Other depository corporations	211	16,332	248	16,592	151	18,536
Life insurance corporations(b)	26,684	6,540	32,509	7,226	30,064	18,586
Central borrowing authorities	-	209	-	30	-	30
Other insurance corporations	5,672	12,817	3,995	14,648	10,371	10.905
Financial intermediaries	15,777	58,534	30,133	72,249	22,199	89,096
Rest of world	-	187,375	-	258,288	-	270,316

HELD BY

National public non-financial corporations	-	815	-	1,852	-	5,373
State and local public non-financial corporations	-	69	13	70	-	71
Private non-financial corporations	12,201	102.498	14,059	144,343	14,033	146,133
Banks	6,176	41,654	14,659	48,637	8,779	59,825
Other depository corporations	-	6,119	-	5,977	-	9,928
Life insurance corporations	37,799	39,971	57,525	42,812	63,544	47,756
Other insurance corporations	4,357	17,860	3,885	20,938	4,067	22,123
Pension funds	86,727	69,728	104,391	94,531	118,926	103,064
Financial intermediaries	43,001	33,982	72,123	35,452	64,373	42,110
National general government	74,258	19,800	50,030	19,217	34,682	20.978
State and local general government	561	107,521	537	105,033	-	100,382
Households	140,164	53,767	168,233	66,398	189,007	84,873
Rest of world	230,260	56,648	258,056	70,305	278,743	74,760

(a) Includes units in trusts. (b) These estimated market values are considered to be of poor quality. 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

	June 1999 % p.a.	June 2000 % p.a.	June 2001 % p.a.

11 a.m. call	4.80	6.01	5.00
Bank-accepted bills-90 days	4.93	6.23	4.97

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. 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 Commonwealth 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


	1999 $m	2000 $m	2001 $m

ISSUED BY

Private non-financial corporations	75,580	88,134	87,586
National public non-financial corporations	3,861	2,982	3,427
State and local public non-financial corporations	299	264	409
Banks	96,061	110,566	113,290
Other depository corporations	29,277	32,963	41,872
Central borrowing authorities	8,536	7,241	7,882
Financial intermediaries n.e.c.	19,771	17,998	20,896
National general government	7,714	5,800	5,100
Households	2,905	2,920	2,941
Rest of World	2,262	2,348	2,889
Total	246,268	271,216	286,292

HELD BY

Private non-financial corporations	24,733	40,135	31,950
National public non-financial corporations	763	370	396
State and local public non-financial corporations	178	48	229
Central bank	2,769	1,257	146
Banks	33,155	42,652	43,854
Other depository corporations	22,718	28,164	31,784
Life insurance corporations	22,661	17,616	15,056
Pension funds	19,814	19,706	18,000
Other insurance corporations	4,848	4,113	3,768
Central borrowing authorities	14,505	11,682	11,303
Financial intermediaries n.e.c.	30,854	31,765	32,367
State and local general government	107	204	315
Households	6,371	4,535	2,816
Rest of world	62,792	68,969	94,308
Total	246,268	271,216	286,292

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 end June of the last three financial years for a range of bonds.

26.17 BOND MARKET, Market Yields

	June 1999 % p.a.	June 2000 % p.a.	June 2001 % p.a.

Treasury bonds
3 years	5.63	5.97	5.55
5 years	5.90	6.05	5.78
10 years	6.27	6.16	6.04
New South Wales T-corp bonds
3 years	5.89	6.29	5.88
5 years	6.24	6.42	6.13
10 years	6.61	6.60	6.24
Finance company debentures
2 years	5.10	6.30	5.20
3 years	5.45	6.40	5.45

Source: Reserve Bank of Australia Bulletin.

The main issuers of bonds are the Commonwealth 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
	Amounts outstanding at 30 June
	Amounts outstanding at 30 June
	1999 $m	2000 $m	2001 $m

ISSUED BY

Private non-financial corporations
- Issued in Australia	5,097	11,236	16,385
- Issued offshore	27,198	31,485	32,161
National public non-financial corporations
- Issued in Australia	3,479	3,919	3,413
- Issued offshore	2,988	4,565	9,290
State and local public non-financial corporations
- Issued in Australia	-	2	2
- Issued offshore	-	-	100
Banks
- Issued in Australia	14,207	12,678	18,173
- Issued offshore	44,139	59,917	67,218
Other depository corporations
- Issued in Australia	15,585	15,844	16,242
- Issued offshore	8,375	10,943	12,773
Other insurance corporations
- Issued in Australia	112	116	123
- Issued offshore	317	472	239
Life insurance corporations
- Issued offshore	-	1,187	1,172
Central borrowing authorities
- Issued in Australia	50,347	50,739	53,165
- Issued offshore	28,032	23,114	19,627
Financial intermediaries n.e.c.
- Issued in Australia	20,032	24,888	30,002
- Issued offshore	14,903	24,342	32,544
National general government
- Issued in Australia	86,260	76,617	68,082
- Issued offshore	1,629	1,468	1,314
State and local general government
- Issued in Australia	244	424	430
- Issued offshore	-	-	-
Rest of the world
- Issued in Australia	-	-	-
- Issued offshore	35,853	42,246	54,547
Total	358,797	396,202	437,002

HELD BY

Private non-financial corporations	1,992	2,164	3,404
National public non-financial corporations	50	22	1,457
State and local public non-financial corporations	328	192	168
Central bank	30,719	36,858	43,957
Banks	21,600	22,299	24,455
Other depository corporations	4,178	6,948	13,110
Life insurance corporations	43,742	45,321	41,147
Pension funds	33,684	35,979	35,605
Other insurance corporations	18,013	18,795	21,928
Central borrowing authorities	8,293	8,872	9,984
Financial intermediaries n.e.c.	18,979	19,445	25,071
State and local general government	82	154	274
National general government	-	-	-
Households	13,707	12,431	10,375
Rest of world	163,430	186,722	206,067
Total	358,797	396,202	437,002

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 Commonwealth Government 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(a), Against Major Currencies
	At 30 June
	At 30 June
	1999	2000	2001

United States dollar	0.6547	0.5887	0.5180
United Kingdom pound	0.4094	0.3895	0.3686
German deutschmark	1.2336	1.2242	1.1871
Japanese yen	78.9705	62.9703	63.1775
Euro	0.6309	0.6261	0.6070

(a) Rate given is the midpoint between the buying and selling rates.
Source: Average of Daily Exchange Rates (5654.0).

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)

	1998-99 $m	1999-2000 $m	2000-01 $m

Transactions by foreign exchange dealers(b)
Outright spot(c)	32,540	22,753	27,281
Outright forward(d)	4,432	3,831	5,093
Swaps	37,903	36,620	41,865
Options	2,485	2,517	3,150
Total	77,360	65,721	77,930

(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.