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1301.0 - Year Book Australia, 2008  
Previous ISSUE Released at 11:30 AM (CANBERRA TIME) 07/02/2008   
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Contents >> Financial system >> Financial markets

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 27.12, 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. Table 27.13 shows details of household demand for credit.

27.12 DEMAND FOR CREDIT(a)

Net transactions during year
2004-05
2005-06
2006-07
$m
$m
$m

Funds (including equity) raised on conventional credit markets by:
Private non-financial corporations(b)
-15 064
125 901
156 554
National public non-financial corporations
602
658
16 489
State and local public non-financial corporations
5 261
3 868
4 396
National general government
-2 395
1 341
-1 821
State and local general government
-447
-1 821
353
Households
103 818
113 168
126 188
Total
91 775
243 115
302 159

(a) Positive numbers indicate an increase in raisings; negative numbers indicate repayment or redemption.
(b) Aggregates impacted by large corporate restructuring transactions.
Source: Australian National Accounts: Financial Accounts (5232.0).


Table 27.13 shows the components of household borrowings.

27.13 HOUSEHOLD DEMAND FOR CREDIT

Net transactions during year
2004-05
2005-06
2006-07
$m
$m
$m

Households demand for credit
103 818
113 168
126 188
Housing
83 830
92 163
91 165
Total Authorised Deposit-taking Institutions (ADIs)
55 136
59 225
54 912
Owner-occupied housing
37 722
42 386
38 152
Investment housing
17 414
16 839
16 760
Other lenders
28 694
32 938
36 253
Non-housing borrowing
19 988
21 005
35 023

Source: Australian National Accounts: Financial Accounts (5232.0); Housing Finance (5609.0).



Stock market

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

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

The ASX classifies listed companies according to their major activity and produces indexes based on these classifications. Table 27.14 summarises the performance of the major indexes.

27.14 AUSTRALIAN STOCK MARKET INDEXES(a)

2004-05
2005-06
2006-07

All ordinaries
Index(b)
4 229.9
5 034.0
6 310.6
High(c)
4 275.6
5 352.1
6 421.0
Low(c)
3 479.3
4 179.8
4 881.3
S&P/ASX 200
4 277.5
5 073.9
6 274.9
Banks
10 865.0
12 722.2
14 771.1
Industrials
6 824.7
7 618.2
9 424.4
Resources
2 861.1
4 282.8
5 295.3

(a) Base 31 December 1979 = 500.
(b) Share prices on joint trading floors; June closing value.
(c) Over a 12-month period ending 30 June.
Source: Australian Stock Exchange; Reserve Bank of Australia; Standard and Poor's.

Table 27.15 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.

27.15 EQUITY MARKET(a) - 30 June

2005
2006
2007
Listed
Unlisted
Listed
Unlisted
Listed
Unlisted
$m
$m
$m
$m
$m
$m

AMOUNTS ON ISSUE

Total equities and units in trusts
982 645
828 969
1 216 029
993 859
1 605 688
1 123 081

ISSUED BY

Private non-financial corporations
588 202
192 807
772 235
226 405
1 078 723
254 610
National public non-financial corporations(b)
62 963
5 629
45 792
5 781
-
6 918
State and local non-financial corporations(b)
-
89 270
-
84 620
-
80 329
Central bank(b)
-
11 241
-
12 685
-
9 703
Banks
216 970
6 496
254 508
6 901
308 631
7 338
Other depository corporations
415
32 784
634
35 037
1 108
37 583
Life insurance corporations
19 698
4 242
28 041
4 539
32 565
4 945
Other insurance corporations
28 279
31 503
32 290
28 262
37 785
38 941
Central borrowing authorities
-
30
-
30
-
30
Financial intermediaries
66 118
105 265
82 529
134 545
146 876
149 279
Rest of world
-
349 702
-
455 054
-
533 405

HELD BY

Private non-financial corporations
18 932
146 937
28 112
196 451
np
221 338
National public non-financial corporations
-
4 021
-
3 736
-
316
State and local public non-financial corporations
-
280
-
291
-
378
Banks
2 029
99 858
1 572
115 177
1 272
135 790
Other depository corporations
67
4 443
50
4 033
85
3 533
Life insurance corporations
64 960
61 624
72 745
65 757
85 242
74 952
Pension funds
197 980
163 546
253 678
209 194
342 682
257 431
Other insurance corporations
7 743
28 674
10 558
32 246
13 411
34 686
Financial intermediaries
77 633
54 157
126 042
76 677
np
np
National general government
32 618
17 512
23 723
19 221
np
np
State and local general government
-
93 195
-
89 868
-
87 588
Households
236 375
73 943
295 294
78 618
372 198
80 206
Rest of world
344 307
80 779
404 255
102 590
511 834
119 933

- nil or rounded to zero (including null cells)
np not available for publication but included in totals where applicable, unless otherwise indicated
(a) Includes units in trusts.
(b) 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. Selected rates in the market at 30 June are shown in table 27.16.

27.16 SHORT-TERM MONEY MARKET RATES(a) - 30 June

2005
2006
2007
%
%
%

11:00 am call
5.50
5.75
6.25
Bank-accepted bills - 90 days
5.66
5.96
6.42

(a) Per annum.
Source: Reserve Bank of Australia.


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 27.17 shows the amount on issue by sector of issuer and sector of holder of the various types of money market securities.


27.17 SHORT-TERM DEBT SECURITIES

Amounts outstanding at 30 June
2005
2006
2007
$m
$m
$m

ISSUED BY

Private non-financial corporations
81 472
93 548
104 873
National public non-financial corporations
509
1 546
18
State and local public non-financial corporations
16
33
38
Banks
155 147
197 212
230 252
Other depository corporations
30 288
29 678
26 212
Life insurance corporations
3
6
9
Other insurance corporations
416
452
438
Central borrowing authorities
5 995
5 374
6 194
Financial intermediaries n.e.c.
24 332
27 914
37 889
National general government
270
252
252
State and local general governemnt
642
762
855
Households
15 223
17 618
22 088
Rest of world
2 236
3 598
4 319
Total
316 549
377 993
433 437

HELD BY

Private non-financial corporations
27 900
25 494
27 369
National public non-financial corporations
215
240
349
State and local public non-financial corporations
1
-
-
Central bank
4 718
13 902
14 473
Banks
60 905
74 319
89 284
Other depository corporations
37 648
30 824
43 621
Life insurance corporations
18 133
17 132
18 222
Pension funds
27 244
28 486
35 533
Other insurance corporations
9 661
10 281
11 281
Central borrowing authorities
20 843
16 239
22 594
Financial intermediaries n.e.c.
22 908
22 556
25 090
Households
7 417
7 122
7 138
Rest of world
78 956
131 398
138 483
Total
316 549
377 993
433 437

- nil or rounded to zero (including null cells)
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 27.18 shows selected market yields at the end of June for a range of bonds.

27.18 BOND MARKET, Market yields(a) - 30 June

2005
2006
2007
%
%
%

Treasury bonds
3 years
5.10
5.78
6.45
5 years
5.10
5.78
6.40
10 years
5.11
5.79
6.26
New South Wales T-corp bonds
3 years
5.33
6.01
6.72
5 years
5.36
6.02
6.76
10 years
5.39
6.08
6.66
Finance company debentures
3 years
5.40
5.90
6.40

(a) Per annum.
Source: Reserve Bank of Australia.


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. Details of the amounts outstanding on bonds issued and held are shown in table 27.19.


27.19 BONDS

Amounts outstanding at 30 June
2005
2006
2007
$m
$m
$m

ISSUED BY

Private non-financial corporations
Issued in Australia
38 784
45 475
56 870
Issued offshore
42 471
47 801
50 044
National public non-financial corporations
Issued in Australia
3 976
3 360
630
Issued offshore
9 658
9 481
-
State and local public non-financial corporations
Issued in Australia
82
82
2
Issued offshore
-
-
-
Banks
Issued in Australia
49 425
63 174
73 506
Issued offshore
146 674
179 283
204 103
Other depository corporations
Issued in Australia
9 861
10 645
11 769
Issued offshore
23 449
20 469
14 353
Life insurance corporation
Issued in Australia
-
-
-
Issued offshore
1 258
1 186
1 484
Other Insurance corporation
Issued in Australia
340
290
461
Issued offshore
3 029
2 981
2 380
Central borrowing authorities
Issued in Australia
60 072
58 059
60 871
Issued offshore
25 409
27 822
30 305
Financial intermediaries n.e.c.
Issued in Australia
79 326
98 941
124 991
Issued offshore
63 068
67 388
89 230
National general government
Issued in Australia
57 913
57 598
55 356
Issued offshore
1 074
878
883
State and local general government
Issued in Australia
285
235
230
Issued offshore
-
-
-
Rest of the world
Issued in Australia
40 062
64 418
76 084
Issued offshore
63 082
82 592
91 646
Total
719 298
842 158
945 198

HELD BY

Private non-financial corporations
7 900
9 910
17 299
National public non-financial corporations
20
15
15
State and local public non-financial corporations
86
42
42
Central bank
35 248
45 214
42 647
Banks
50 698
50 222
54 769
Other depository corporations
19 839
21 048
24 329
Life insurance corporations
44 157
48 506
49 876
Pension funds
59 861
78 690
86 930
Other insurance corporations
31 302
33 940
33 670
Central borrowing authorities
9 918
9 545
11 637
Financial intermediaries n.e.c.
48 022
54 756
63 356
National general government
State and local general government
704
2 513
1 513
Households
7 277
8 109
6 942
Rest of world
404 266
479 648
552 173
Total
719 298
842 158
945 198

- nil or rounded to zero (including null cells)
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 Government floated 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. The currencies in the basket were weighted according to their trading significance to Australia. Table 27.20 shows the value of the Australian dollar against major currencies.

27.20 VALUE OF AUSTRALIAN DOLLAR, Against major currencies

At last trading day in June
2005
2006
2007

United States of America dollar
0.7659
0.7440
0.8521
United Kingdom pound
0.4254
0.4099
0.4282
Japanese yen
85.0400
86.0800
105.4900
Euro
0.6379
0.5925
0.6376

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 27.21 shows daily averages of foreign exchange turnover against all currencies. More recent information may be found in the Reserve Bank of Australia Bulletin table F.10 (<http://www.rba.gov.au/Statistics/Bulletin/index.html>).

27.21 FOREIGN EXCHANGE TURNOVER AGAINST ALL CURRENCIES

2004-05
2005-06
$m
$m

Transactions by foreign exchange dealers(a)
Outright spot(b)
38 746
53 693
Outright forward(c)
7 944
11 881
Swaps
87 514
108 089
Options
3 209
3 236
Total
137 413
176 898

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





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