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1301.0 - Year Book Australia, 2003  
Previous ISSUE Released at 11:30 AM (CANBERRA TIME) 24/01/2003   
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Contents >> Financial System >> 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 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

1999-2000
2000-01
2001-02
$m
$m
$m

Funds (including equity) raised on conventional credit markets by
Private non-financial corporations
62,083
48,861
36,941
National public non-financial corporations
18,665
4,071
776
State and local public non-financial corporations
941
3,273
1,175
National general government
-10,701
-9,541
-2,680
State and local general government
-3,361
-4,067
-508
Households
61,124
43,513
78,366
Total
128,751
86,110
114,070

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

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

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)

1999-2000
2000-01
2001-02

All ordinaries
Index(b)
3,257.6
3,425.2
3,163.2
High(c)
3,274.1
3,425.2
3,440.0
Low(c)
2,779.7
3,094.3
2,867.4
All industrials
Index(b)
5,791.9
5,892.7
5,445.7
High (c)
5,797.6
5,892.7
5,998.7
Low(c)
5,058.5
5,385.6
5,111.8
All resources
Index(b)
1,344.3
1,582.2
1,576.0
High(c)
1,458.7
1,643.7
1,740.2
Low(c)
1,145.6
1,301.4
1,245.4

(a) Base 31 December 1979 = 500.
(b) Share prices on joint trading floors; June closing value.
(c) Over a 12-month period.

Source: BRW Media, ‘Shares’ magazine; 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 EQUITY MARKET(a)

Amounts on issue at 30 June

2000
2001
2002



Listed
Unlisted
Listed
Unlisted
Listed
Unlisted
$m
$m(b)
$m
$m(b)
$m
$m(b)

Total equities and units in trusts
742,698
475,391
776,152
508,469
738,866
567,793

ISSUED BY

National public non-financial corporations(c)
87,315
8,509
69,224
8,444
59,960
4,854
State and local non-financial corporations(c)
-
99,384
-
98,998
-
91,897
Private corporate trading enterprises
451,976
144,680
470,523
163,036
434,545
174,334
Central bank(c)
-
10,446
-
12,265
-
11,399
Banks
134,179
4,362
170,873
7,408
181,323
7,990
Other depository corporations
243
15,488
145
19,972
227
23,402
Life insurance corporations
32,509
6,025
30,064
17,251
22,457
15,342
Central borrowing authorities
5,180
15,447
10,371
14,713
8,905
16,883
Other insurance corporations
-
30
-
30
-
87
Financial intermediaries
31,296
71,274
24,952
88,485
31,449
96,384
Rest of world
-
282,059
-
298,247
-
278,360

HELD BY

National public non-financial corporations
-
1,852
-
2,689
-
6,211
State and local public non-financial corporations
13
70
-
71
-
76
Private non-financial corporations
12,881
165,856
11,303
177,519
8,122
163,252
Banks
14,659
47,487
8,779
59,675
8,572
57,182
Other depository corporations
-
5,864
-
9,750
-
10,430
Life insurance corporations
57,967
42,812
63,558
47,969
61,509
53,329
Other insurance corporations
108,997
20,939
122,204
22,545
112,446
23,734
Pension funds
3,885
96,933
4,090
103,272
3,873
106,441
Financial intermediaries
-
36,437
-
42,728
-
45,606
National general government
71,358
19,217
67,015
20,978
71,011
16,541
State and local general government
50,030
101,272
34,682
100,619
30,040
92,609
Households
537
55,247
-
72,888
-
83,805
Rest of world
155,319
63,708
186,857
68,146
165,886
61,716

(a) Includes units in trusts.
(b) The unlisted estimated market values are considered to be of poor quality unless based on net asset values. They should be used cautiously. See footnote (c).
(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 - As at 30 June

2000
2001
2002
% p.a.
% p.a.
% p.a.

11 am call
6.01
5.00
4.72
Bank-accepted bills-90 days
6.23
4.97
5.07

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 (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 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

2000
2001
2002
$m
$m
$m

ISSUED BY

Private non-financial corporations
84,547
85,140
80,362
National public non-financial corporations
3,587
3,841
2,637
State and local public non-financial corporations
264
409
576
Banks
96,755
91,811
104,051
Other depository corporations
32,068
42,829
35,989
Life insurance corporations
-
674
467
Other insurance corporations
-
-
22
Central borrowing authorities
7,241
8,199
9,957
Financial intermediaries n.e.c.
17,002
21,470
25,150
National general government
5,800
5,100
4,201
Households
8,384
8,936
8,923
Rest of world
3,207
3,625
2,182
Total
258,855
272,034
274,517

HELD BY

Private non-financial corporations
32,972
23,138
18,717
National public non-financial corporations
370
779
797
State and local public non-financial corporations
48
182
126
Central bank
1,199
1,013
1,897
Banks
40,440
42,315
69,170
Other depository corporations
29,761
34,440
28,302
Life insurance corporations
17,812
15,082
16,243
Pension funds
19,666
18,212
18,391
Other insurance corporations
4,616
4,341
6,020
Central borrowing authorities
11,478
10,592
10,337
Financial intermediaries n.e.c.
27,542
28,533
22,121
State and local general government
204
315
533
Households
7,101
6,850
3,090
Rest of world
65,646
86,242
78,773
Total
258,855
272,034
274,517

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


26.17 BOND MARKET, Market yields - As at 30 June

2000
2001
2002
% p.a.
% p.a.
% p.a.

Treasury bonds
3 years
5.97
5.55
5.61
5 years
6.05
5.78
5.78
10 years
6.16
6.04
5.99
New South Wales T-corp bonds
3 years
6.29
5.88
5.79
5 years
6.42
6.13
6.04
10 years
6.60
6.24
6.29
Finance company debentures
2 years
6.30
5.20
5.45
3 years
6.40
5.45
5.60

Source: Reserve Bank of Australia Bulletin.


Historically, the main issuers of bonds have been 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 at 30 June

2000
2001
2002
$m
$m
$m

ISSUED BY

Private non-financial corporations
Issued in Australia
10,481
15,630
17,872
Issued offshore
41,998
44,676
42,597
National public non-financial corporations
Issued in Australia
3,919
3,387
4,976
Issued offshore
4,565
9,376
10,708
State and local public non-financial corporations
Issued in Australia
-
-
-
Issued offshore
-
-
-
Banks
Issued in Australia
21,543
25,783
27,980
Issued offshore
64,864
81,097
88,041
Other depository corporations
Issued in Australia
15,844
16,242
12,778
Issued offshore
10,996
12,691
13,071
Other insurance corporations
Issued in Australia
116
123
128
Issued offshore
450
101
238
Life insurance corporations
Issued in Australia
1,431
1,261
1,261
Issued offshore
1,327
1,261
1,012
Central borrowing authorities
Issued in Australia
51,487
54,453
52,999
Issued offshore
23,114
19,545
18,622
Financial intermediaries n.e.c.
Issued in Australia
24,883
30,723
42,782
Issued offshore
23,153
30,774
35,687
National general government
Issued in Australia
76,617
68,090
64,165
Issued offshore
1,468
1,314
1,449
State and local general government
Issued in Australia
424
430
305
Issued offshore
-
-
-
Rest of the world
Issued in Australia
-
-
-
Issued offshore
41,676
56,060
57,062
Total
420,356
473,017
493,733

HELD BY

Private non-financial corporations
2,194
4,681
4,564
National public non-financial corporations
22
1,457
1,408
State and local public non-financial corporations
192
200
71
Central bank
36,858
39,709
40,163
Banks
27,230
35,586
30,005
Other depository corporations
9,670
13,580
19,306
Life insurance corporations
45,261
41,220
38,048
Pension funds
36,476
35,954
39,346
Other insurance corporations
19,418
21,647
24,785
Central borrowing authorities
7,423
8,852
7,519
Financial intermediaries n.e.c.
21,525
30,769
35,231
State and local general government
154
274
315
National general government
11
9
9
Households
12,758
9,936
7,315
Rest of world
201,164
229,143
245,648
Total
420,356
473,017
493,733

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

2000
2001
2002

United States of America dollar
0.5941
0.5180
0.5684
United Kingdom pound
0.3929
0.3686
0.3829
Japanese yen
62.9703
63.1775
70.0348
Euro
0.6261
0.6070
0.5961

(a) Rate given is the midpoint between the buying and selling rates.

Source: Average of Daily Exchange Rates, Data Report (5654.0.40.001).


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)

1999-2000
2000-01
2001-02
$m
$m
$m

Transactions by foreign exchange dealers(b)
Outright spot(c)
22,740
21,367
22,772
Outright forward(d)
3,830
5,094
6,407
Swaps
36,609
46,824
58,404
Options
2,517
3,103
4,998
Total
65,696
76,388
92,581

(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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