10:40 am - Wednesday June 28, 2017

Australian money markets – An introduction

Do you know Australian Dollar is the third most traded currency in the world in 2012?  In 2010 it was the fifth most traded currency in the world – behind US Dollar, Euro, Japanese Yen and Pound Sterling.

Australian Dollar is the favourite of currency traders, because of the comparatively high interest rates in Australia, the comparative freedom from government intervention, general stability of Australian economy and the political system.

Australian money markets are closely integrated both with the domestic economy and with international financial markets.

Australian money markets are among the most internationalized with significant participation by foreign borrowers and investors. This partly reflects strong demand among foreign investors for securities denominated in higher yielding currencies.

The following table captures the structure of Australian money markets

Outright Transactions  
Government securities Issued by Commonwealth Governments
Treasury Notes  
Treasury bonds (of less than 18 months)  
Treasury Indexed Bonds (of less than 18 months)  
Semi-government securities Issued by State Government & Territory Central Borrowing Authorities
Semi-government promissory notes (of less than 18 months)  
Semi-government bonds (of less than 18 months)  
Semi-government indexed bonds (of less than 18 months)  
Repurchase agreements  
Government securities Issued by Commonwealth Governments
Treasury Notes  
Treasury bonds  
Treasury indexed bonds  
Semi-government securities Issued by State Government & Territory Central Borrowing Authorities
Semi-government promissory notes  
Semi –government bonds  
Semi-government indexed bonds  
Domestic securities Issued by foreign sovereigns, supranationals and government agency securities
Accepted bills of exchange Issued by eligible banks
Negotiable certificates of deposits Issued by eligible banks

Do you know there are three major elements that differentiate Australian money markets from United States’ money markets? They are

  • Nature of reserve requirements
  • Lending procedures
  • Certain money market dealers bank Reserve Bank of Australia rather than with commercial banks (private banks)

In Australian money markets, one may deal in two types of funds.

The first consists of same day funds or exchange settlement funds that accrue to exchange settlement accounts at the Reserve Bank of Australia. These include direct dealings with the Reserve Bank of Australia, transactions with authorised dealers, and the previous day’s check clearings.

Funds of the second type are those transferred by bank checks. These are next day funds because checks presented against banks in Australia are cleared through Australian Clearing House and do not affect the exchange settlement accounts of banks until the next working day.

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