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 27.12, 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. Table 27.13 shows details of household demand for credit.

27.12 DEMAND FOR CREDIT(a)
		Net transactions during year
		2006 - 07	2007 - 08	2008 - 09
		$m	$m	$m
Funds (including equity) raised on conventional credit markets by:
	Private non-financial corporations(b)	160 892	156 278	108 186
	National public non-financial corporations	15 858	-734	179
	State and local public non-financial corporations	2 948	9 904	23 967
	National general government	-1 820	1 963	47 603
	State and local general government	332	7 571	5 857
	Households	128 433	106 024	71 441
	Total	306 643	281 006	257 233
(a) Positive numbers indicate an increase in raisings. Negative numbers indicate repayment or redemption.
(b) Aggregates impacted by large corporate restructuring transactions.
Source: ABS Australian National Accounts: Financial Accounts (5232.0).

27.13 HOUSEHOLD DEMAND FOR CREDIT
				Net transactions during year
				2006 - 07	2007 - 08	2008 - 09
				$m	$m	$m
Households demand for credit				128 433	106 024	71 441
	Housing			91 504	90 108	84 646
		Total Authorised Deposit-taking Institutions (ADIs)		54 905	123 288	122 882
			Owner-occupied housing	38 144	89 346	96 851
			Investment housing	16 761	33 942	26 031
		Other lenders		36 599	-33 180	-38 236
	Non-Housing Borrowing			36 929	15 916	-13 205
Source: ABS Australian National Accounts:Financial Accounts (5232.0); ABS Housing Finance (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, 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 27.14 summarises the performance of the major indexes.

27.14 AUSTRALIAN STOCK MARKET INDEXES(a)
		2006 - 07	2007 - 08	2008 - 09
All ordinaries
	Index(b)	6 310.6	5 332.9	3 947.8
	High(c)	6 435.7	6 873.2	5 351.4
	Low(c)	4 878.1	5 130.1	3 090.8
S&P/ASX 200		6 274.9	5 215.3	3 954.9
	Banks	14 771.1	10 378.0	9 629.0
	Industrials	9 424.4	6 618.0	5 331.0
	Resources	5 295.3	6 630.0	4 492.0
(a) Base 31 December 1979 = 500.
(b) Share prices on joint trading floors; June closing value.
(c) Over a 12-month period ending 30 June.
Source: Australian Stock Exchange; Reserve Bank of Australia; Standard and Poor's.

Table 27.15 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.

27.15 EQUITY MARKET(a) - 30 June
	2007			2008			2009
	Listed	Unlisted(b)		Listed	Unlisted(b)		Listed	Unlisted(b)
	$m	$m		$m	$m		$m	$m
AMOUNTS ON ISSUE
Total equities and units in trusts	1 605 996	1 179 475		1 342 754	1 167 203		1 079 717	1 020 058
ISSUED BY
Private non-financial corporations	1 090 260	268 487		1 001 946	295 434		747 813	274 840
National public non-financial corporations(c)	-	6 918		-	7 503		-	6 277
State and local non-financial corporations(c)	-	77 739		-	66 393		-	39 790
Central bank(c)	-	9 703		-	10 616		-	11 964
Banks	308 631	11 783		221 016	13 678		230 369	10 270
Other depository corporations	1 108	36 645		442	34 985		283	34 201
Life insurance corporations	32 565	4 946		21 433	4 947		18 750	4 975
Other insurance corporations	37 785	38 434		27 316	37 042		28 106	37 276
Central borrowing authorities	-	30		-	30		-	30
Financial intermediaries	135 647	149 710		70 601	127 865		54 396	105 660
Rest of world	-	575 080		-	568 710		-	494 775
HELD BY
Private non-financial corporations	53 500	260 949		43 093	288 165		28 331	254 842
National public non-financial corporations	-	316		-	318		-	322
State and local public non-financial corporations	-	378		-	376		-	403
Banks	1 272	134 237		725	111 261		1 172	102 857
Other depository corporations	85	4 115		127	4 637		131	4 490
Life insurance corporations	83 149	91 668		73 608	84 726		56 222	73 546
Pension funds	362 000	248 403		301 491	251 597		221 748	211 372
Other insurance corporations	14 414	38 818		11 845	32 426		6 326	32 971
Financial intermediaries	192 372	79 534		140 435	66 768		110 656	53 959
National general government	18 215	19 600		13 320	29 408		11 892	34 415
State and local general government	4 767	89 764		3 564	76 567		2 550	44 615
Households	352 738	85 131		268 429	79 143		188 618	70 847
Rest of world	523 484	126 562		486 117	141 811		452 071	135 419
- 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: ABS 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 27.16.

27.16 SHORT-TERM MONEY MARKET RATES(a) - 30 June
	2007	2008	2009
	%	%	%
11:00 am call	6.25	7.25	3.00
Bank-accepted bills - 90 days	6.42	7.81	3.25
(a) Per annum.
Source: Reserve Bank of Australia.

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 27.17 shows the amount on issue by sector of issuer and sector of holder of the various types of money market securities.

27.17 SHORT-TERM DEBT SECURITIES
	Amounts outstanding at 30 June
	2007	2008	2009
	$m	$m	$m
ISSUED BY
Private non-financial corporations	105 250	119 008	121 306
National public non-financial corporations	18	57	42
State and local public non-financial corporations	38	59	64
Banks	412 768	540 123	452 847
Other depository corporations	28 514	25 051	10 907
Life insurance corporations	9	5	5
Other insurance corporations	438	596	719
Central borrowing authorities	7 005	10 834	20 288
Financial intermediaries n.e.c.	39 017	43 717	31 704
National general government	252	339	17 347
State and local general governemnt	855	905	938
Households	22 088	25 479	27 216
Rest of world	3 674	3 968	3 488
Total	619 926	770 141	686 871
HELD BY
Private non-financial corporations	27 402	26 208	32 932
National public non-financial corporations	349	283	297
State and local public non-financial corporations	-	-	134
Central bank	14 473	39 554	9 787
Banks	253 734	325 164	340 727
Other depository corporations	53 497	62 770	47 705
Life insurance corporations	16 049	14 141	17 037
Pension funds	35 560	39 080	45 229
Other insurance corporations	11 703	11 103	10 629
Central borrowing authorities	26 853	25 933	27 479
Financial intermediaries n.e.c.	32 038	32 858	10 865
National general government	-	40 381	35 148
State and local general governemnt	2 389	1 408	2 947
Households	7 756	7 405	4 746
Rest of world	138 123	143 853	101 209
Total	619 926	770 141	686 871
- nil or rounded to zero (including null cells)
Source: ABS 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 27.18 shows selected market yields at the end of June for a range of bonds.

27.18 BOND MARKET(a), Market yields - 30 June
		2007	2008	2009
		%	%	%
Treasury bonds
	3 years	6.45	6.71	4.63
	5 years	6.40	6.57	5.23
	10 years	6.26	6.45	5.52
New South Wales T-corp bonds
	3 years	6.72	7.29	5.19
	5 years	6.76	7.19	5.74
	10 years	6.66	7.02	6.23
(a) Per annum.
Source: Reserve Bank of Australia.

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. 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 27.19.

27.19 BONDS
		Amounts outstanding at 30 June
		2007	2008	2009
		$m	$m	$m
ISSUED BY
Private non-financial corporations
	Issued in Australia	56 477	47 736	47 834
	Issued offshore	53 207	64 225	97 673
National public non-financial corporations
	Issued in Australia	629	629	799
	Issued offshore	-	-	-
State and local public non-financial corporations
	Issued in Australia	-	-	-
	Issued offshore	-	-	-
Banks
	Issued in Australia	73 506	103 911	129 849
	Issued offshore	204 103	239 177	294 701
Other depository corporations
	Issued in Australia	11 930	9 757	8 732
	Issued offshore	14 261	11 217	7 980
Life insurance corporation
	Issued in Australia	-	-	-
	Issued offshore	1 488	1 825	1 541
Other Insurance corporation
	Issued in Australia	461	432	282
	Issued offshore	3 051	3 089	2 211
Central borrowing authorities
	Issued in Australia	62 716	70 133	116 824
	Issued offshore	30 305	32 121	19 597
Financial intermediaries n.e.c.
	Issued in Australia	122 343	167 382	242 401
	Issued offshore	92 750	69 061	54 601
National general government
	Issued in Australia	55 356	57 779	88 255
	Issued offshore	883	732	637
State and local general government
	Issued in Australia	229	521	614
	Issued offshore	-	-	-
Rest of the world
	Issued in Australia	76 084	83 357	79 851
	Issued offshore	83 453	84 274	103 525
Total		943 232	1 047 358	1 297 907
HELD BY
Private non-financial corporations		17 157	19 523	25 061
National public non-financial corporations		5	15	14
State and local public non-financial corporations		7	60	57
Central bank		42 647	39 643	75 657
Banks		56 695	130 400	220 681
Other depository corporations		24 351	19 154	23 097
Life insurance corporations		47 773	45 562	47 284
Pension funds		82 040	94 872	99 174
Other insurance corporations		36 862	37 012	38 039
Central borrowing authorities		9 526	10 238	14 598
Financial intermediaries n.e.c.		50 687	53 378	59 103
National general government		-	3 798	22 858
	State and local general government	8 880	8 406	7 832
	Households	6 942	6 085	5 119
	Rest of world	559 650	579 212	659 333
Total		943 232	1 047 358	1 297 907
- nil or rounded to zero (including null cells)
Source: ABS 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. 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 27.20 shows the value of the Australian dollar against major currencies.

27.20 VALUE OF AUSTRALIAN DOLLAR, Against major currencies
	At last trading day in June
	2007	2008	2009
United States of America dollar	0.8521	0.9694	0.8220
United Kingdom pound	0.4282	0.4882	0.4979
Japanese yen	105.4900	103.2000	79.3500
Euro	0.6376	0.6157	0.5842
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 27.21 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 (<http://www.rba.gov.au/Statistics/Bulletin/index.html>).

27.21 FOREIGN EXCHANGE TURNOVER AGAINST ALL CURRENCIES
		Daily average(a)
		2006 - 07	2007 - 08	2008 - 09
		$m	$m	$m
Transactions by foreign exchange dealers(b)
	Outright spot(c)	50 222	59 732	61 499
	Outright forward(d)	15 113	11 524	9 954
	Swaps	120 647	111 417	104 256
	Options	3 680	2 923	2 752
	Total	189 662	185 597	178 461
(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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