An Economics Skills and Activities Workbook
There are many different financial markets that
operate in Australia that cater for the various needs of borrowers, lenders and
investors. Among the most common markets that most Australians are familiar
with are:
In addition there are other markets where
people can save, invest or borrow. These include:
Many of these markets can also be divided into
primary or secondary markets. For example in the share market there are two
different markets operating. Companies that wish to raise financial capital
(money), issue shares and other securities, to investors for the first time do
so in what is known as the primary market. Shares in the primary market are
purchased directly from the company issuing them. From there on the shares are
traded in the secondary market that involves people who own shares wanting to
sell their shares. It is like when you buy a brand new car at the dealer. This
is the primary market. If you decide to sell the car to another individual or
to another dealer later on that involves selling a used car and takes place in
the secondary market.
The 2005 Australian Financial Markets Report shows that Australia has one of the fastest growing financial markets in the world. Annual turnover across Australian financial markets (encompassing both over-the-counter (OTC) and exchange traded markets) increased by 20% to A$82 trillion in the year to June 2005. This follows expansions of 23% in the year to June 2004 and 12% in the year to June 2003. The total market turnover in 2004-05 was more than triple that of 1994-95, reinforcing the significance of growth in depth and sophistication of Australian financial markets in the last decade.
The annual market turnover in 2004-05 represents about 92 times the total value of the nation’s nominal GDP (A$892 billion), compared to 49 times the nominal GDP (A$487 billion) in 1994-95. Foreign exchange markets turnover has grown significantly over the past few years, with turnover in the past 12 months similar to 2003-04 levels.
Annual turnover in exchange-traded markets (equities and futures) has continued its uninterrupted series of strong increases with a 36% gain in 2004-05. Turnover in the futures markets was up more than 36% to A$23 trillion. The futures markets are the second largest in Australia behind foreign exchange. Equities markets expanded by 32% to above $A1 trillion in 2004-05, an increase of around 900% since 1994-05.
1.
What
is a primary financial market?
2.
How is
a secondary market different?
3.
When
you buy and sell shares are you operating in a primary or secondary market?
4.
What
has been the rate of growth of Australia’s financial markets in recent years?
5.
How
does this compare to the rate of growth of the economy
6.
What
are Australia’s two largest financial markets?
7.
What is
the difference between an over the counter market and an exchange traded market?
8.
Give
two examples of financial markets that would come in each of the two categories
in question 7?
If you want more of these exercises and the answers go to An Economics Skills and Activities Workbook