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1301.0 - Year Book Australia, 2012  
Latest ISSUE Released at 11:30 AM (CANBERRA TIME) 24/05/2012   
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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 are the credit market, stock market, money market, bond market and the foreign exchange 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 that 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 are frequently 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 27.15, which presents a summary of the demand for credit in Australia by the non-financial sector. It includes raisings by the issue of both debt and equity securities. Table 27.16 shows details of household demand for credit. For both tables, positive numbers indicate an increase in debt and negative numbers indicate repayment or redemption.


27.15 DEMAND FOR CREDIT(a)

Net transactions during year
2008–09
2009–10
2010–11
$m
$m
$m

Funds (including equity) raised on conventional credit markets by:
Private non-financial investment funds
1 793
–278
9 645
Other private non-financial corporations(b)
127 883
35 785
79 830
National public non-financial corporations
–19
–328
–41
State and local public non-financial corporations
21 646
13 891
730
National general government
44 293
51 622
45 151
State and local general government
5 934
21 734
20 709
Households
66 705
105 440
83 555
Total
268 235
227 866
239 579

(a) Data refer to net transactions. Positive numbers indicate an increase in debt. Negative numbers indicate repayment or redemption.
(b) Data are affected by large corporate restructuring transactions.
Source: Australian National Accounts: Financial Accounts (5232.0).

27.16 HOUSEHOLD DEMAND FOR CREDIT(a)
Net transactions during year
2008–09
2009–10
2010–11
$m
$m
$m

Household demand for credit
66 705
105 440
83 555
Housing
84 607
95 818
88 943
Total Authorised Deposit-taking Institutions (ADIs)
123 295
117 617
91 503
Owner occupied housing
97 214
83 410
67 055
Investment housing
26 081
34 207
24 448
Other lenders
–38 688
–21 799
–2 560
Non-housing borrowing(b)
–17 902
9 622
–5 388

(a) Data refer to net transactions. Positive numbers indicate an increase in debt. Negative numbers indicate repayment or redemption.
(b) Includes credit card and personal loans.

Source: Australian National Accounts: Financial Accounts (5232.0); Housing Finance, Australia (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 Australian Stock Exchange (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 (SEATS), 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 27.17 summarises the performance of the major indexes.


27.17 AUSTRALIAN STOCK MARKET INDEXES(a)
2007–08
2008–09
2009–10
2010–11

All ordinaries
Index(b)
5 332.9
3 947.8
4 674.8
4 375.8
High(c)
6 873.2
5 351.4
4 888.2
5 064.9
Low(c)
5 130.1
3 090.8
4 324.1
4 250.6
S&P/ASX 200(b)
5 215.3
3 954.9
4 302.0
4 025.0
Banks(b)
10 378.0
9 629.0
11 110.0
11 915.0
Industrials(b)
6 618.0
5 331.0
5 825.0
6 148.3
Resources(b)
6 630.0
4 492.0
4 837.0
5 596.8

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


Table 27.18 shows details of the equity market for listed and unlisted entities.


27.18 EQUITY MARKET(a)30 June
2009
2010
2011
Listed
Unlisted
Listed
Unlisted
Listed
Unlisted
$m
$m(b)
$m
$m(b)
$m
$m(b)

AMOUNTS ON ISSUE
Total equities and units in trusts
1 079 726
1 275 746
1 228 092
1 398 056
1 331 599
1 472 256

ISSUED BY
Private non-financial investment funds
50 632
29 068
63 429
32 994
69 290
41 895
Other private non-financial corporations
697 192
247 249
774 907
245 885
863 871
263 057
National public non-financial corporations(c)
6 681
7 897
9 588
State and local non-financial corporations(c)
82 583
88 910
84 196
Central bank(c)
11 964
9 685
5 336
Banks
230 369
10 848
281 056
12 091
286 449
16 762
Other depository corporations
283
33 592
405
37 841
374
39 502
Life insurance corporations
10 833
7 357
11 534
6 626
13 749
10 392
Pension funds
10
——
Other insurance corporations
28 106
36 608
26 944
36 565
26 993
35 596
Central borrowing authorities
–3 655
–2 805
–1 702
Money market financial investment funds
48 024
39 338
25 944
Non-money market financial investment funds
43 789
252 209
51 096
303 851
39 468
310 729
Securitisers
1 412
588
1 092
Other financial corporations
18 512
1 211
18 721
1 261
31 405
1 348
Rest of world
510 595
577 329
628 521

HELD BY
Private non-financial investment funds
1 584
13 184
1 455
11 997
1 321
13 202
Other private non-financial corporations
16 574
281 785
15 166
289 554
14 410
297 558
National public non-financial corporations
322
360
352
State and local public non-financial corporations
6
447
498
568
Banks
1 500
101 556
2 058
104 701
1 955
109 322
Other depository corporations
373
2 908
517
1 309
1 009
1 148
Life insurance corporations
17 262
146 005
16 880
176 323
15 725
176 581
Pension funds
236 971
220 898
276 301
260 217
332 085
287 253
Other insurance corporations
15 146
33 158
15 504
34 155
15 617
34 196
Money market financial investment funds
2 205
2 035
2 098
Non-money market financial investment funds
107 639
113 381
121 088
122 970
131 474
126 742
Other financial corporations
48 278
18 902
55 878
29 458
49 338
29 799
National general government
12 020
42 692
11 347
51 566
9 428
56 005
State and local general government
376
79 762
284
84 364
3 111
97 021
Households
168 409
78 498
182 953
82 784
179 311
82 577
Rest of world
453 588
140 043
528 661
145 765
576 815
157 834

— nil or rounded to zero (including null cells)
(a) Includes units in trusts.
(b) The unlisted estimated market values are considered to be of poor quality. They should be used with caution.
(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. Selected rates in the market at 30 June are shown in table 27.19.


27.19 SHORT-TERM MONEY MARKET RATES(a)30 June
2009
2010
2011
% p.a.
% p.a.
% p.a.

11 am call
4.73
3.69
4.67
Bank-accepted bills – 90 days
4.79
4.04
4.91

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


Money market securities are short-term, that is, they 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, 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 that sell them in the market. The Australian Government issues treasury notes. State and territory governments and large corporations issue commercial paper, while banks issue negotiable certificates of deposit. Table 27.20 shows the value of short-term debt securities on issue by sector of issuer and sector of holder.


27.20 SHORT-TERM DEBT SECURITIES
Amounts outstanding at 30 June
2009
2010
2011
$m
$m
$m

ISSUED BY
Private non-financial investment funds
935
622
1 064
Other private non-financial corporations
123 122
114 519
102 472
National public non-financial corporations
87
81
105
State and local public non-financial corporations
64
134
158
Banks
300 044
274 608
266 769
Other depository corporations
8 747
8 241
9 580
Life insurance corporations
5
3
4
Non-life insurance corporations
719
363
319
Non-money market investment funds
Central borrowing authorities
14 824
16 467
20 981
Securitisers
29 000
19 411
15 126
Other financial corporations
2 492
2 155
1 996
National general government
17 347
11 657
16 794
State and local general government
938
933
885
Households
27 216
26 706
24 769
Rest of world
2 216
6 200
8 096
Total
527 756
482 100
469 118

HELD BY
Private non-financial investment funds
102
110
60
Other private non-financial corporations
16 819
6 108
11 133
National public non-financial corporations
295
442
349
State and local public non-financial corporations
132
Central bank
10 904
10 890
6 494
Banks
208 741
182 744
185 608
Other depository corporations
12 618
11 809
18 806
Life insurance corporations
11 495
11 003
7 749
Pension funds
29 701
48 637
38 966
Non-life insurance corporations
15 259
13 368
12 505
Money market investment funds
36 592
25 256
15 095
Non-money market investment funds
15 852
15 293
18 765
Central borrowing authorities
25 808
21 483
18 068
Securitisers
1 176
459
605
Other financial corporations
7 987
3 549
2 329
National general government
35 146
16 229
10 326
State and local general government
645
37
73
Households
3 461
1 500
1 520
Rest of world
95 023
113 183
120 667
Total
527 756
482 100
469 118

– 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 a small number of zero-coupon or deep discount securities that 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 27.21 shows selected market yields at the end of June for a range of bonds.


27.21 BOND MARKET, Market yields(a)30 June
2009
2010
2011
% p.a.
% p.a.
% p.a.

Treasury bonds
3 years
4.25
4.92
4.93
5 years
4.58
5.24
5.08
10 years
5.00
5.50
5.31
New South Wales T-corp bonds
3 years
5.05
5.23
5.15
5 years
5.41
5.59
5.44
10 years
5.84
5.98
5.72

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


Historically, the main issuers of bonds have been the Australian Government, and state and territory governments, the latter through their central borrowing authorities. Corporate bonds are issued only by very large private trading and financial enterprises. Following the onset of the global financial crisis in late 2007, government and bank issuances have increased. Details of the amounts outstanding on bonds issued and held are shown in table 27.22.


27.22 BONDS
Amounts outstanding at 30 June
2009
2010
2011
$m
$m
$m

ISSUED BY
Private non-financial investment funds
Issued in Australia
7 132
6 919
6 716
Issued offshore
2 610
2 349
2 540
Other private non-financial corporations
Issued in Australia
33 281
33 007
33 960
Issued offshore
101 351
109 015
109 145
National public non-financial corporations
Issued in Australia
1 299
1 022
1 025
Issued offshore
State and local public non-financial corporations
Issued in Australia
Issued offshore
Banks
Issued in Australia
145 461
174 413
192 984
Issued offshore
282 408
322 377
273 738
Other depository corporations
Issued in Australia
10 942
8 877
14 458
Issued offshore
7 979
9 667
9 566
Life insurance corporations
Issued in Australia
Issued offshore
2 324
2 240
1 675
Non-life Insurance corporations
Issued in Australia
282
500
1 281
Issued offshore
3 540
3 781
2 962
Central borrowing authorities
Issued in Australia
116 710
148 824
164 950
Issued offshore
21 837
16 821
10 151
Non-money market investment funds
Issued in Australia
660
420
188
Issued offshore
1 060
328
115
Securitisers
Issued in Australia
241 350
222 622
229 849
Issued offshore
50 699
31 821
19 963
National general government
Issued in Australia
85 407
145 245
185 660
Issued offshore
817
689
735
State and local general government
Issued in Australia
614
849
851
Issued offshore
Rest of the world
Issued in Australia
79 851
97 997
107 476
Issued offshore
103 449
109 273
101 049
Total
1 301 063
1 449 056
1 471 037

HELD BY
Private non-financial investment funds
1 282
779
544
Other private non-financial corporations
29 770
21 838
19 728
National public non-financial corporations
14
14
14
State and local public non-financial corporations
123
85
69
Central bank
71 061
53 731
45 480
Banks
239 835
292 212
332 556
Other depository corporations
25 487
19 120
22 664
Life insurance corporations
23 794
25 912
24 720
Non-life insurance corporations
42 727
39 237
41 644
Pension funds
101 816
109 827
113 496
Central borrowing authorities
18 119
16 991
17 707
Money market Investment funds
2 750
1 733
1 142
Non-money market investment funds
42 983
47 253
49 425
Securitisers
16 383
9 664
7 258
Other financial corporations
612
652
667
National general government
23 072
39 292
34 928
Households
5 218
4 930
3 481
Rest of world
656 017
765 786
755 514
Total
1 301 063
1 449 056
1 471 037

– 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. Immediately 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 27.23 shows the value of the Australian dollar against major currencies.

Over the last few years, there have been significant movements in the Australian dollar against major currencies, including the US dollar, UK pound and the Euro. In fact, for these currencies, the Australian dollar has climbed to record levels of appreciation.


27.23 VALUE OF AUSTRALIAN DOLLAR, Against major currencies(a)

2003
2004
2005
2006
2007
2008
2009
2010
2011

United States of America dollar
0.7521
0.7835
0.7363
0.7938
0.8875
0.7017
0.9189
1.0437
1.0451
United Kingdom pound
0.4243
0.4092
0.4284
0.4067
0.4451
0.4867
0.5733
0.6770
0.6800
Japanese yen
80.9500
81.2200
87.2500
94.7400
100.9900
64.1400
85.6200
85.9800
82.1900
Euro
0.6042
0.5792
0.6254
0.6081
0.6040
0.5006
0.6417
0.7910
0.8116

(a) At last trading day in December.

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 27.24 shows the daily average of foreign exchange turnover against all currencies. More recent information may be found in the Reserve Bank of Australia Bulletin Table F.10.


27.24 FOREIGN EXCHANGE TURNOVER, Against all currencies
Daily average(a)
200809
200910
201011
$m
$m
$m

Transactions by foreign exchange dealers(b)
Outright spot(c)
61 499
58 697
47 218
Outright forward(d)
9 954
7 474
9 114
Swaps
104 256
99 354
121 316
Options
2 752
2 429
2 595
Total
178 461
167 953
180 243

(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.

 

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Statistics contained in the Year Book are the most recent available at the time of preparation. In many cases, the ABS website and the websites of other organisations provide access to more recent data. Each Year Book table or graph and the bibliography at the end of each chapter provides hyperlinks to the most up to date data release where available.

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