1301.0 - Year Book Australia, 2003

ARCHIVED 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.