Australia’s net long foreign currency exposure, after FX hedging through derivatives, has jumped 46% to A$217.6 billion (US$160 billion) since June 2001, according to data released last week by the Australian Bureau of Statistics (ABS).
All major Australian enterprises including banks, financial institutions, the Reserve Bank of Australia (RBA), state borrowing authorities and companies were surveyed by the ABS for the FX positions as at 31 March 2005.
The country’s central bank, RBA, had the country’s largest FX exposure at A$43.8 billion but after accounting for derivatives, was reduced to $22.4 billion.
Australian banks were exposed by $152.5 billion, but after hedging, saw their positions reduced to just $0.8 billion. Other financial corporations had a net foreign currency exposure before hedging of $113.7 billion and after hedging of $98.5 billion.
The predominant policy adopted by all sectors surveyed for hedging foreign equity assets was "no hedging", with 63.5% of total foreign equity assets not hedged, according to ABS.
However, the main policy applied to hedge gross debt assets and liabilities, was "hedging a constant percentage", with 63.8% of gross debt assets and liabilities subject to this policy.
Forward FX and cross currency interest rate swaps made up the bulk of derivatives used for hedging, accounting for 60.8% and 26.7%, respectively, of the principal value of outstanding FX derivative contracts.
…While FX Options Business Tumbles
Australia’s FX trading volumes of A$31.7 trillion were down 0.25% from a year ago after jumping 21.2% the previous year, according to data released in the annual Australian Financial Markets Association (AFMA) survey.
However, AFMA found that currency options volumes fell 37% over the year to June 2005, "no doubt the result of last year’s FX issue at National Australia Bank", said Ken Farrow, AFMA’s chief executive, in a statement. The bank, one of Australia’s largest, suffered a US$270 million loss from unauthorised FX options trading in late 2003 (see Profit & Loss, October 6).
Total FX options business in Australia in the year to June 2005 amounted to A$1.2 trillion, while spot FX accounted for A$9.9 trillion, FX swaps for $19.8 trillion, and forward FX for $1.9 trillion, to total A$31.7 trillion after adjusting for off balance sheet activity.
Total financial markets turnover including FX volumes, debt and equity securities, all OTC and exchange traded derivatives rose 19.5% to A$82.4 trillion over the year. But compared to five years ago, the Australian financial markets are now double what they were.