1301.0 - Year Book Australia, 2004

ARCHIVED ISSUE Released at 11:30 AM (CANBERRA TIME) 27/02/2004

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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

		2000-01	2001-02	2002-03
		$m	$m	$m

Funds (including equity) raised on conventional credit markets by
	Private non-financial corporations	68,274	18,018	31,793
	National public non-financial corporations	4,072	1,302	-2,253
	State and local public non-financial corporations	3,128	1,007	3,738
	National general government	-9,524	-2,616	-4,131
	State and local general government	-3,939	-509	-271
	Households	43,439	78,780	95,365
	Total	105,450	95,982	124,241

(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)
		2000-01	2001-02	2002-03

All ordinaries
	Index(b)	3,425.2	3,163.2	2,999.7
	High(c)	3,425.2	3,440.0	3,205.4
	Low(c)	3,094.3	2,867.5	2,673.3
S&P/ASX 200		3,490	3,216	3,026
	Banks	9,447	9,940	9,514
	Industrials	5,999	5,459	5,159
	Resources	1,582	1,564	1,439

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

Source: Australian Stock Exchange; Reserve Bank of Australia; Standard and Poor's.

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 - 30 June
	2001		2002		2003

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

Total equities and units in trusts	776,151	738,759	733,425	738,008	704,404	755,458

ISSUED BY

Private non-financial corporations	470,007	156,134	429,590	175,639	412,544	189,534
National public non-financial corporations(c)	69,224	8,444	59,960	4,854	56,501	4,908
State and local non-financial corporations(c)	-	98,998	-	92,131	-	92,062
Central bank(c)	-	12,265	-	11,399	-	11,678
Banks	170,873	7,255	181,323	8,384	174,080	7,064
Other depository corporations	145	20,125	227	24,943	363	31,535
Life insurance corporations	30,064	17,251	22,457	14,108	11,336	13,266
Other insurance corporations	10,371	14,713	8,905	16,883	14,896	16,120
Central borrowing authorities	-	30	-	87	-	30
Financial intermediaries	25,467	106,001	30,963	105,336	34,684	112,754
Rest of world	-	297,543	-	284,244		276,507

HELD BY

Private non-financial corporations	13,501	177,797	8,395	172,157	7,465	178,138
National public non-financial corporations	-	2,689	-	6,647	-	3,635
State and local public non-financial corporations	-	71	-	310	-	279
Banks	9,367	63,844	8,812	64,169	10,421	73,883
Other depository corporations	-	9,776	-	10,506	353	15,795
Life insurance corporations	58,212	49,453	58,554	52,111	48,851	58,883
Pension funds	120,959	102,933	117,211	106,081	117,232	108,456
Other insurance corporations	3,090	22,174	4,440	20,331	3,562	17,947
Financial intermediaries	65,634	43,244	59,724	43,707	50,819	48,687
National general government	34,682	20,978	30,040	16,541	28,307	16,879
State and local general government	-	100,619	-	92,609	-	91,655
Households	178,975	81,551	159,401	87,888	140,979	78,562
Rest of world	291,731	63,630	286,848	64,951	296,415	62,659

(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. (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 - 30 June
	2001	2002	2003
	% p.a.	% p.a.	% p.a.

11 am call	5.00	4.72	4.75
Bank-accepted bills-90 days	4.97	5.07	4.67

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 Australian 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
	2001	2002	2003
	$m	$m	$m

ISSUED BY

Private non-financial corporations	79,771	77,715	73,775
National public non-financial corporations	3,841	2,637	2,104
State and local public non-financial corporations	-	-	2
Banks	91,811	102,938	131,485
Other depository corporations	50,430	49,238	36,379
Life insurance corporations	702	475	4
Other insurance corporations	-	43	37
Central borrowing authorities	8,199	10,220	8,767
Financial intermediaries n.e.c.	22,031	25,306	24,385
National general government	5,290	4,477	246
Households	8,936	8,923	10,538
Rest of world	3,629	2,688	4,018
Total	274,640	284,660	291,740

HELD BY

Private non-financial corporations	23,784	18,703	27,418
National public non-financial corporations	779	797	495
State and local public non-financial corporations	182	126	36
Central bank	1,013	1,897	500
Banks	43,136	72,659	72,201
Other depository corporations	35,837	32,323	39,305
Life insurance corporations	14,861	15,552	17,113
Pension funds	18,218	16,541	20,644
Other insurance corporations	4,923	5,771	7,278
Central borrowing authorities	10,592	9,919	11,817
Financial intermediaries n.e.c.	26,686	22,030	15,660
State and local general government	315	533	209
Households	10,622	8,333	8,411
Rest of world	83,692	79,476	70,653
Total	274,640	284,660	291,740

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 - 30 June
		2001	2002	2003
		% p.a.	% p.a.	% p.a.

Treasury bonds
	3 years	5.55	5.61	4.47
	5 years	5.78	5.78	4.71
	10 years	6.04	5.99	5.01
New South Wales T-corp bonds
	3 years	5.88	5.79	4.64
	5 years	6.13	6.04	4.89
	10 years	6.24	6.29	5.20
Finance company debentures
	2 years	5.20	5.45	4.10
	3 years	5.45	5.60	4.20

Source: Reserve Bank of Australia Bulletin.

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. 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 - 30 June
		2001	2002	2003
		$m	$m	$m

ISSUED BY

Private non-financial corporations
	Issued in Australia	15,684	17,809	22,204
	Issued offshore	36,109	33,572	38,407
National public non-financial corporations
	Issued in Australia	3,387	4,976	3,013
	Issued offshore	9,376	10,708	10,266
State and local public non-financial corporations
	Issued in Australia	-	-	-
	Issued offshore	-	-	-
Banks
	Issued in Australia	25,783	26,735	24,713
	Issued offshore	81,097	87,827	90,373
Other depository corporations
	Issued in Australia	13,826	11,698	10,287
	Issued offshore	15,362	16,277	24,975
Other insurance corporations
	Issued in Australia	123	128	428
	Issued offshore	74	-	334
Life insurance corporations
	Issued in Australia	1,266	1,256	1,257
	Issued offshore	1,313	968	789
Central borrowing authorities
	Issued in Australia	54,136	52,998	54,509
	Issued offshore	19,545	17,513	18,930
Financial intermediaries n.e.c.
	Issued in Australia	30,723	42,529	51,645
	Issued offshore	32,526	37,735	44,544
National general government
	Issued in Australia	68,082	64,155	64,897
	Issued offshore	1,314	1,449	1,439
State and local general government
	Issued in Australia	430	306	304
	Issued offshore	-	-	-
Rest of the world
	Issued in Australia	-	-	-
	Issued offshore	54,492	54,979	58,144
Total		464,650	483,620	521,460

HELD BY

Private non-financial corporations		7,916	7,202	6,215
National public non-financial corporations		1,457	372	124
State and local public non-financial corporations		200	71	26
Central bank		39,709	40,163	42,805
Banks		34,338	31,011	32,931
Other depository corporations		15,169	20,047	16,236
Life insurance corporations		41,311	38,789	38,579
Pension funds		34,988	38,542	40,499
Other insurance corporations		21,690	21,989	28,949
Central borrowing authorities		8,852	9,443	9,608
Financial intermediaries n.e.c.		26,356	28,178	29,739
State and local general government		274	315	575
National general government		9	15	22
Households		7,355	6,889	7,151
Rest of world		225,026	240,594	268,001
Total		464,650	483,620	521,460

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 Commonwealth 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, Against major currencies - At last trading day in June
	2001	2002	2003

United States of America dollar	0.5086	0.5670	0.6700
United Kingdom pound	0.3623	0.3720	0.4074
Japanese yen	63.63	68.09	80.44
Euro	0.6070	0.5790	0.5907


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 26.20 shows daily averages of foreign exchange turnover against all currencies.

26.20 FOREIGN EXCHANGE TURNOVER AGAINST ALL CURRENCIES, Daily averages(a)
		2000-01	2001-02	2002-03
		$m	$m	$m

Transactions by foreign exchange dealers(b)
	Outright spot(c)	21,367	22,772	30,051
	Outright forward(d)	5,094	6,407	7,424
	Swaps	46,824	58,404	67,991
	Options	3,103	4,832	6,289
	Total	76,387	92,414	111,755

(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.