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1301.0 - Year Book Australia, 2002  
Previous 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

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

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

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.


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