GLOSSARY

A$

Australian dollar; ISO 4217 currency code AUD.

ABARE

Australian Bureau of Agricultural and Resource Economics

ABCP

Asset-backed commercial paper

ABF

Asian Bond Fund. An initiative of the EMEAP central banks aimed at deepening regional financial markets. The first stage (ABF1) is a fund investing in US dollar sovereign and quasi-sovereign bonds issued in eight of the eleven EMEAP economies (i.e. excludes Australia, Japan and New Zealand). The second stage (ABF2) is currently under development and will invest in domestic sovereign and quasi-sovereign currency bonds in eight EMEAP markets.

ABS

Australian Bureau of Statistics. The central statistical authority for the Australian Government.

ACC

Asian Consultative Council (of the BIS). Its main purpose is to provide a vehicle for communication between the Asian & Pacific members of the BIS and the Board of Management on matters of interest and concern to the Asian central banking community, including the operation of the BIS Hong Kong Office.

ACCC

Australian Competition and Consumer Commission. A Commonwealth statutory authority responsible for ensuring compliance with the Trade Practices Act 1974 and the provisions of the Conduct Code and for administering the Prices Surveillance Act 1983. The Commission's consumer protection work complements that of State and Territory consumer affairs agencies.

accrual accounting

Revenues and expenses are recorded as they are earned or incurred, regardless of whether cash has been received or disbursed. For example, sales on credit would be recognised as revenue, even though the debt may not be settled for some time.

ACH

Australian Clearing House. It provides central counterparty services for a range of financial products traded on the ASX, including equities, warrants, and equity-related derivatives. ACH is a wholly-owned subsidiary of the ASX group.

acquirer

An institution that provides a merchant with facilities to accept card payments, accounts to the merchant for the proceeds and clears and settles the resulting obligations with card issuers.

ACT

Australian Competition Tribunal

ADI

Authorised deposit-taking institution. ADIs (banks, building societies and credit unions) are supervised by the Australian Prudential Regulation Authority (APRA).

AEDT

Australian Eastern Daylight-saving Time

AEST

Australian Eastern Standard Time

AFIs

All Financial Intermediaries

AFMA

Australian Financial Markets Association. A national industry body representing about 200 organisations which participate in the Australian over-the-counter (OTC) wholesale financial markets. Transactions include foreign exchange, interest rate products, financial derivatives, repurchase agreements, commodities, equity and electricity derivatives.

agency banking

Since 1 July 1999 all Australian Government departments and agencies have been responsible for their own individual banking arrangements. Under devolved banking arrangements, agencies are required to test the services previously provided by the Reserve Bank of Australia (RBA) against what is available from other financial institutions. However, the Australian Government's core account, the Official Public Account, remained with the RBA. A system sweeps balances of Australian Government departments and agencies from their transactional banker to the Official Public Account at the RBA each night.

aggregate demand

Gross domestic product as measured by the sum of final expenditure on goods and services produced, plus exports minus imports.

aggregate supply

Gross domestic product as measured by the value of goods and services produced, less the cost of production.

AIF

Automated Information Facility. An automated message service used by banks to assist with credit and liquidity management.

AIFRS

Australian equivalents to International Financial Reporting Standards

AMMD

Authorised Money Market Dealers

ANNI

Austraclear National Network Infrastructure

ANZSIC

Australian and New Zealand Standard Industrial Classification

AOFM

Australian Office of Financial Management. A prescribed agency, within the Treasury portfolio, responsible for the Australian Government's debt management activities, which includes running tenders of CGS and advising the Treasurer on all aspects of Australian Government debt management.

APCA

Australian Payments Clearing Association Limited. A public company owned by banks, building societies and credit unions which has specific accountability for key parts of the Australian payments system, particularly payments clearing operations.

APCS

Australian Paper Clearing System operated by Australian Payments Clearing Association Limited (APCA).

APEC

Asia-Pacific Economic Co-operation forum. APEC was established in 1989 and has become the primary regional vehicle for promoting open trade and practical economic co-operation. It has 21 member countries, including Australia.

appreciation

An increase in the value of an asset. In foreign-exchange terms, it is a relative increase in the value of one currency compared to another.

APRA

Australian Prudential Regulation Authority. APRA is the prudential regulator of the Australian financial services industry. It oversees banks, credit unions, building societies, general insurance and reinsurance companies, life insurance companies, friendly societies, and most members of the superannuation industry.

ASB

Australian Savings Bond. A superseded form of fixed-interest coupon bond, cashable on thirty days' notice after an initial holding period.

ASIC

Australian Securities and Investments Commission. One of three Australian Government bodies (the others being the Australian Prudential Regulation Authority and the Reserve Bank of Australia) that regulates financial services. ASIC is the national regulator of Australia's companies. ASIC has responsibility for market protection and consumer integrity issues across the financial system.

ASTC

ASX Settlement and Transfer Corporation. It provides settlement services for ASX markets, as well as for a small number of transactions undertaken on the National Stock Exchange (NSX). ASTC is a wholly-owned subsidiary of the ASX group.

ASX

Australian Securities Exchange Limited. The ASX operates Australia's primary national exchange for equities, derivatives and fixed-interest securities.

ATM

Automated Teller Machine

AUD

Australian dollar (ISO 4217 currency code); A$ is more commonly used.

AUSTRAC

Australian Transaction Reports and Analysis Centre

Austraclear

Austraclear provides settlement services for the OTC debt market and for derivatives traded on the SFE and ASX markets. Austraclear is a wholly-owned subsidiary of the ASX group.

Australian Securities Exchange

Australian Securities Exchange Limited. The ASX operates Australia's primary national exchange for equities, derivatives and fixed-interest securities.

AWOTE

Average weekly ordinary-time earnings. A measure of earnings for full-time employed adults compiled by the Australian Bureau of Statistics.

balance of payments

A summary of the economic transactions between residents of one country and residents of other countries.

bank accepted bill of exchange

A bank accepted bill of exchange is a bill of exchange that lists a bank as the acceptor of the bill. As an acceptor, a bank has a liability to pay the holder the face value of the bill at maturity. In certain circumstances, the liability is contingent on the borrower, or drawer, defaulting.

bankruptcy

A legal status, which can be initiated by a creditor or person concerned, whereby the bankrupt's property is vested in a trustee and, with the exception of certain personal and professional property, is available for distribution to creditors.

basis point

A basis point is 1/100th of 1 per cent or 0.01 per cent. The term is used in money and securities markets to define differences in interest or yield.

BECS

Bulk Electronic Clearing System operated by Australian Payments Clearing Association Limited (APCA).

bid

The price offered to purchase securities in the primary market. In relation to a tender, a bid also includes the volume willing to be bought at the price offered.

bill rate

The bill rate is the effective yield to maturity earned by the holder of a bill. The yield is usually expressed as a per annum rate.

BIS

Bank for International Settlements. An international organisation, based in Switzerland, which encourages co-operation among central banks and other agencies in pursuit of monetary and financial stability and provides banking facilities for central banks.

bond

In general terms, a bond is a statement of debt with a medium to long term to maturity at the time it is issued. The holder of a bond is a lender to the issuer. As such, the statement gives the issuer an obligation to provide the holder with an income payment and/or a stream of income payments over the life of the bond and to repay the principal. The risk that the issuer cannot fulfil their obligation varies from issuer to issuer and over time.

borrower

A person or entity that incurs a debt to a lender on agreed terms.

BPAY

BPAY is a payments clearing organisation owned by a group of retail banks. Individuals who hold accounts with a BPAY participating financial institution can pay billing organisations which participate in BPAY, using account transfers initiated by phone or internet. The transfers may be from savings, cheque or credit card accounts.

Bps

Basis points. A basis point is 1/100th of 1 per cent or 0.01 per cent. The term is used in money and securities markets to define differences in interest or yield.

broad money

The widest definition of money published by the Reserve Bank of Australia (RBA). Broad money is defined as currency plus bank current deposits of the private non-bank sector, plus all other bank deposits of the private non-bank sector plus borrowings from the private sector by non-bank financial intermediaries (NBFIs), less the latters' holdings of currency and bank deposits.

Bulletin

A monthly publication which contains economic commentary by the Reserve Bank of Australia, feature articles, speeches and a set of statistical tables. The full text of Bulletin articles plus statistical series, media releases and other matters of record published since September 1996 are available on-line.

business cycle

The period between peaks or troughs of macroeconomic activity.

CAC

Collective Action Clause. A clause in bond contracts that includes provisions allowing a qualified majority of lenders to amend key financial terms of the debt contract and bind a minority to accept these new terms.

CAC Act

Commonwealth Authorities and Companies Act 1997.

capital market

A market for medium to long-term financial instruments. Financial instruments traded in the capital market include shares, and bonds issued by the Australian Government, State governments, corporate borrowers and financial institutions.

card issuer

An institution that provides its customers with debit or credit cards.

cash accounting

Revenues and outlays recorded in an organisation's accounts when cash is collected or spent.

cash rate

Broadly defined, the term cash rate is used to denote the interest rate which financial institutions pay to borrow or charge to lend funds in the money market on an overnight basis. The Reserve Bank of Australia uses a narrower definition of the cash rate as an operational target for the implementation of monetary policy. The Reserve Bank of Australia's measure of the cash rate is the interest rate which banks pay or charge to borrow funds from or lend funds to other banks on an overnight unsecured basis. This measure is also known as the interbank overnight rate. The Reserve Bank of Australia calculates and publishes this cash rate each day on the basis of data collected directly from banks. This measure of the cash rate has been published by the Reserve Bank of Australia since June 1998.

cash rate target

As in most developed countries, the stance of monetary policy in Australia is expressed in terms of a target for an overnight interest rate. The rate used by the Reserve Bank of Australia is the cash rate (also known as the interbank overnight rate). When the Reserve Bank Board decides that a change in monetary policy should occur, it specifies a new target for the cash rate. A decision to ease policy is reflected in a new lower target for the cash rate, while a decision to tighten policy is reflected in a higher target.

CAT/CAPs

Credit Authorisation Terminals with capture functionality

CATs

Credit Authorisation Terminals

CD

Certificate of deposit

CECS

Consumer Electronic Clearing System operated by Australian Payments Clearing Association Limited (APCA).

central bank

A non-commercial bank, which may or may not be independent of government, which has some or all of the following functions: conduct monetary policy; oversee the stability of the financial system; issue currency notes; act as banker to the government; supervise financial institutions and regulate payments systems.

CFR

Council of Financial Regulators

CGFS

Committee on the Global Financial System. A committee of the BIS which seeks to support central banks in developing appropriate policy recommendations in relation to financial stability, intermediation and transparency.

CGS

Commonwealth Government securities. Include all securities issued by the Australian Government at tenders conducted by the AOFM (and by the Reserve Bank of Australia acting as agent for the Australian Government prior to 23 October 2006). They comprise Treasury bonds, Treasury notes, Treasury indexed bonds and, previously, Treasury adjustable rate bonds. These securities are issued by multi-price tender.

charge card

A charge card is a card whose holder has been granted a non-revolving credit line enabling the holder to make purchases and possibly make cash advances. A charge card does not offer extended credit; the full amount of any debt incurred must be settled at the end of a specified period.

CHESS

Clearing House Electronic Sub-register System. CHESS is a settlement system for Australian equities operated by ASX Settlement and Transfer Corporation.

Clearing

The process of transmitting, reconciling and in some cases confirming payment instructions prior to settlement; it may include netting of instructions and the calculation of final positions for settlement.

CLERP

Corporate Law Economic Reform Program

Close-out netting

An arrangement to settle all contracted but not yet due liabilities to, and claims on, an institution by a single payment, immediately upon the occurrence of one of a list of defined events such as the appointment of a liquidator to that institution.

CLS

Continuous Linked Settlement. A process enabling simultaneous foreign exchange settlement across the globe, eliminating the settlement risk caused by delays arising from time-zone differences.

CLS Bank

CLS Bank is a multi-currency bank, regulated by the Federal Reserve Bank of New York, which uses central bank funds to simultaneously settle cross-currency transactions in real time through a process known as Continuous Linked Settlement (CLS).

Commonwealth Government Securities

Include all securities issued by the Australian Government at tenders conducted by the AOFM (and by the Reserve Bank of Australia acting as agent for the Australian Government prior to 23 October 2006). They comprise Treasury bonds, Treasury notes, Treasury indexed bonds and, previously, Treasury adjustable rate bonds. These securities are issued by multi-price tender.

Compendium of Standards

The Compendium is an initiative of the Financial Stability Forum and a joint product of the standard-setting bodies represented on the Forum. It highlights 12 core standards and around 60 others relevant for sound financial systems. The Compendium is updated on an ongoing basis. The 12 core standards cover matters such as monetary and fiscal transparency, corporate governance and prudential supervision.

counterfeit

A representation of currency intended to deceive recipients.

CPI

Consumer Price Index. A general measure of price inflation for the household sector compiled and published by the Australian Bureau of Statistics.

CPSS

Committee on Payment and Settlement Systems

credit card

A credit card is a card whose holder has been granted a revolving credit line. The card enables the holder to make purchases and/or cash advances up to a pre-arranged limit. The credit granted can be settled in full by the end of a specified period or in part, with the balance taken as extended credit. Interest may be charged on the transaction amounts from the date of each transaction or only on the extended credit where the credit granted has not been settled in full.

credit risk/exposure

The risk that a counterparty will not settle an obligation for full value, either when due or thereafter. In 'exchange-for-value' systems, the risk is generally defined to include replacement risk (the risk of having to replace a contract at a potentially unfavourable price) and principal risk.

CRVS

Cheque Reconciliation and Verification System.

CSIRO

Commonwealth Scientific and Industrial Research Organisation

CUBS

Credit Unions and Building Societies

debit card

A debit card is a card that enables the holder to access funds in a deposit account at an authorised deposit-taking institution.

DEEWR

Department of Education, Employment and Workplace Relations [an Australian Government Department which is referenced on this website as the acronym 'DEEWR']

Deferred Net Settlement System

A settlement system in which each participant settles (typically by means of a single payment or receipt) its net position which results from the payments made and received by it, at some defined time after payments have been made.

denomination

The face value of a currency item: may be notes or coin.

depreciation

A fall in the value of an asset. In foreign-exchange terms, it is a relative decrease in the value of one currency compared to another.

deregulation

The progressive removal of controls on entry and operations, intended to enhance competition, and raise the productivity of the major entities in the industry concerned.

derivative

A financial contract whose value is based on, or derived from, another financial instrument (such as a bond or share) or a market index (such as the Share Price Index). Examples of derivatives include futures, forwards, swaps and options.

Designation

The formal notification of action taken to exercise powers conferred by legislation.

direct debit

A pre-authorised debit on the payer's bank account initiated by the recipient (payee).

direct entry credit

A pre-planned credit from one account to another.

direct entry payment

A direct debit or credit.

DOFD

Department of Finance and Deregulation [an Australian Government Department which is referenced on this website in its shortened form 'Finance', or acronym 'DOFD']

domestic government securities

Domestically issued government securities comprising Commonwealth Government securities (CGS) and securities, known as semi-government securities, issued by the central borrowing authorities of the State and Territory governments.

DvP

Delivery-versus-Payment

ECU

European currency unit

EEO

Equal Employment Opportunity

EFTPOB

Electronic Funds Transfer at Point of Bank

EFTPOS

Electronic Funds Transfer at Point of Sale

EMEAP

Executives' Meeting of East Asia-Pacific Central Banks. The members are central banks and monetary authorities from Australia, the People's Republic of China, Hong Kong, Indonesia, Japan, Korea, Malaysia, New Zealand, Philippines, Singapore and Thailand. EMEAP's objective is to strengthen the co-operative relationship among central banks in the region.

EMH

Efficient markets hypothesis. The view that security or stock prices reflect all available information and it is impossible for an investor to consistently 'beat the market'.

equity market

A market where investors buy and sell securities providing ownership of a company's shares.

ESA

Exchange Settlement Account. An account held at the RBA by financial institutions to settle financial obligations arising from the clearing of payments.

exchange rates

The price of one currency expressed in terms of another currency. Any exchange rate can be quoted two ways, e.g. Australian dollars per US dollar (USD/AUD) or US dollars per Australian dollar (AUD/USD). The convention for the Australian dollar is that it is quoted as the foreign currency price of the Australian dollar. This is sometimes referred to as the 'Indirect' method of quoting.

Exchange Settlement Account

An account held at the Reserve Bank of Australia by financial institutions to settle financial obligations arising from the clearing of payments.

FASB

US Financial Accounting Standards Board.

FCA

Financial Corporations Act 1974

FCGF

Finance companies and general financiers

Finance

Department of Finance and Deregulation [an Australian Government Department which is referenced on this website in its shortened form 'Finance', or acronym 'DOFD']

financial (fiscal) year

The 12-month period decided upon for financial measurement. In Australia it is usually from 1 July, to 30 June in the following year.

financial aggregates

A Reserve Bank of Australia data series specifying measures of the supply of money and credit. It includes some or all of: currency on issue; current deposits with banks; other deposits of the private non-bank sector with banks; borrowings from the private sector by non-bank depository corporations; and credit (loans, advances and bills discounted to the private sector).

financial conglomerates

Financial institutions which undertake several activities such as banking, stock broking, insurance and funds management.

financial disturbance

An event or incident, which causes a significant loss of confidence by depositors or investors in a financial institution or a disruption to financial markets.

financial institution

A company whose primary function is to intermediate between lenders and borrowers in the economy.

financial markets

A generic term for the markets in which financial instruments are traded. Financial instruments have no intrinsic value of themselves. They represent a claim over real assets or a future income stream. The four main financial markets are the foreign exchange market, the fixed interest or bond market, the share or equity market and the derivatives market.

financial sector

The sector of the economy that comprises financial institutions and financial markets.

Financial Stability Board (formerly Financial Stability Forum)

Financial Stability Board. The Financial Stability Board (FSB) was formed in April 2009 as the re-establishment of the Financial Stability Forum (FSF), which had existed since 1999. The FSB has a mandate to assess the vulnerabilities affecting the financial system, identify and oversee action to address them, and promote co-operation and information sharing among authorities responsible for financial stability. Its membership comprises the original FSF members, G-20 countries not already included in the FSF, Spain, and a number of international groupings of regulators and supervisors, and committees of central bank experts.

Financial Stability Review

The Reserve Bank issues a Financial Stability Review half-yearly. These reviews assess the current condition of the financial system and potential risks to financial stability, and survey policy developments designed to improve financial stability.

financial system architecture

The structure of financial system regulation, supervision and intermediation. Since the Asian crisis in the late 1990s, the architecture work program has focused on crisis prevention, management and resolution.

fiscal transparency

The facility which enables investors and other interested parties to satisfy themselves as to the nature and quality of the decision process pursued by policy-makers in government or the corporate entity concerned. One of the 12 key standards identified by the Financial Stability Forum as the minimum required for good practice in sound financial systems. Fiscal transparency strengthens accountability of the government and decreases the risk of maintaining unsustainable policies.

floating exchange rate

Exchange rates determined by market forces based on the demand for and supply of a currency.

FMA Act

Financial Management and Accountability Act 1997

FOI

Freedom of Information

foreign-currency liquidity

The capacity to exchange foreign currency for domestic currency without significantly moving the exchange rate. The extent to which a foreign currency may be traded readily without causing a significant movement in price.

Four Pillars Policy

An Australian Government policy that there should be no fewer than four major banks to maintain appropriate levels of competition in the banking sector.

FSAP

Financial Sector Assessment Program. A joint International Monetary Fund (IMF) and World Bank program, seeking to identify the strengths and vulnerabilities of countries' financial systems, and to determine how key sources of risks are being managed. For developing countries, assessments are used to ascertain developmental and technical assistance needs, and to help prioritise policy responses. For developed countries, FSAP assessments are conducted solely by the IMF and do not cover developmental issues.

FSB (formerly FSF)

Financial Stability Board. The Financial Stability Board (FSB) was formed in April 2009 as the re-establishment of the Financial Stability Forum (FSF), which had existed since 1999. The FSB has a mandate to assess the vulnerabilities affecting the financial system, identify and oversee action to address them, and promote co-operation and information sharing among authorities responsible for financial stability. Its membership comprises the original FSF members, G-20 countries not already included in the FSF, Spain, and a number of international groupings of regulators and supervisors, and committees of central bank experts.

FX

Foreign exchange

G10

Group of Ten countries: Belgium, Canada, France, Germany, Italy, Japan, Netherlands, Sweden, Switzerland, United Kingdom, and USA; plus Bank for International Settlements (BIS), European Commission, International Monetary Fund (IMF), and the Organisation for Economic Co-operation and Development (OECD). It was formed in conjunction with the establishment of the General Arrangements to Borrow, under which members agreed to make resources available to the IMF.

G-20

Group of Twenty Forum: Members are finance ministers and central bankers from - Argentina, Australia, Brazil, Canada, China, France, Germany, India, Indonesia, Italy, Japan, Mexico, Russia, Saudi Arabia, South Africa, South Korea, Turkey, UK and US; plus representatives of the IMF, European Union and World Bank. The G-20 aims to broaden the dialogue on key economic and financial policy issues among systemically significant economies, and promote co-operation to achieve stable and sustainable world economic growth.

G22

Group of Twenty-two. The G22's aim was to advance issues related to the global financial architecture. It operated through three Working Parties - on Transparency and Accountability, International Financial Crises, and Strengthening Financial Systems. The group made its recommendations in 1998, and its work has since been taken up in other forums.

G7

Group of Seven countries: Canada, France, Germany, Italy, Japan, UK and USA. The G7 Summit deals with issues covering macroeconomic management, international trade, international financial architecture, relations with developing countries, and other global issues.

G8

Group of Eight countries: G7 countries and Russia.

GDES

Government Direct Entry Service. The Government Direct Entry Service (GDES) is a Reserve Bank of Australia proprietary system developed in 1991 to process the large volume of payments initiated by the Australian Government. Direct credit and direct debit transactions are received from banking customers electronically via direct communication links, ReserveLink or diskette. Transactions are processed through the GDES system and distributed to financial institutions via direct communication links, dial-up mailbox and facsimile.

GDP

Gross Domestic Product. A key measure of the value of economic production in the economy. GDP is determined in one of three ways: the value of goods and services produced less the cost of production; the sum of incomes generated by production; the sum of final expenditure on goods and services produced plus exports minus imports. An average of the three approaches may be calculated and is also referred to as GDP.

Government EasyPay

Government EasyPay is a telephone and Internet collection service available to Australian Government agencies.

GPF

Government Partnership Fund

GST

Goods and Services Tax

HAC Rule

Honour All Cards Rule

HILDA Survey

The Household, Income and Labour Dynamics in Australia (HILDA) Survey is a household-based panel study which began in 2001. It collects information about economic and subjective well-being, labour market dynamics and family dynamics. Interviews are conducted annually with all available adult members of each household in the sample and members are followed over time. The HILDA Survey was initiated and is funded by the Australian Government Department of Families, Housing, Community Services and Indigenous Affairs (FaHCSIA), and is managed by the Melbourne Institute of Applied Economic and Social Research (MIAESR).

HLI

Highly leveraged institution, in which debt represents a high proportion of aggregate liabilities and capital represents a low proportion. The most well known are also called hedge funds. Hedge funds are typically pooled investment vehicles that are privately organised and administered by professional investment managers.

HVCS

High-value Clearing System operated by Australian Payments Clearing Association Limited (APCA).

IAIS

International Association of Insurance Supervisors.

IASB

International Accounting Standards Board.

IMF

International Monetary Fund. The IMF is an international organisation of 184 member countries, established to promote international monetary co-operation, exchange stability, and orderly exchange arrangements; foster economic growth and high levels of employment; and provide temporary financial assistance to countries to help ease balance of payments adjustments.

Index of Commodity Prices

A Reserve Bank of Australia-compiled index (based 2001/02=100) which provides a measure of price movements in rural and non-rural (including base metals) commodities in Australian Dollars (AUD), Special Drawing Rights (SDR) and United States Dollars (USD).

indicative mid rates

The daily schedule of annual returns expressed as a percentage of the prices of specific fixed-coupon bonds, capital-indexed bonds and Treasury notes issued by the Australian Government. They are averages of buy/sell rates reported by bond dealers surveyed by the Reserve Bank of Australia at 4.30 pm AEST.

inflation

A measure of the change (increase) in the general level of prices.

inflation target

A tool to guide monetary policy expressed as a preferred range or figure for the rate of increase in prices over a period. In Australia, the inflation target is between 2 and 3 per cent per annum on average over the course of the business cycle.

insolvency

A situation where an entity has insufficient assets to cover the value of its liabilities, resulting in an inability to meet its financial obligations as they fall due.

interbank overnight rate

The interbank overnight rate (also known as the cash rate) is the interest rate which banks pay or charge to borrow funds from or lend funds to other banks on an overnight unsecured basis. The Reserve Bank of Australia uses this rate as an operational target for the implementation of monetary policy. The Reserve Bank of Australia calculates and publishes this rate each day on the basis of data collected directly from banks. The interbank overnight rate has been published by the Reserve Bank of Australia since June 1998.

interchange fee

A fee paid between card issuers and acquirers when cardholders make transactions.

interest rate

The term used to describe the cost of borrowing money or the return to the owner of the funds which are invested or lent out. It is usually expressed as a percent per annum of the amount of money borrowed, lent or invested.

international reserves

Holdings by a central bank of foreign exchange and gold.

IOSCO

International Organization of Securities Commissions. An international organisation whose members co-operate to promote high standards of regulation in order to protect investors and ensure that markets are fair, efficient and transparent.

labour market

A collective term for employment, unemployment, participation rates and wages.

LCIR

Loan Consolidation and Investment Reserve

lender

A person or institution which provides loans on agreed terms to borrowers.

lending and credit aggregates

Reserve Bank of Australia measures of lending and credit made available to the private non-finance sector (including public trading enterprises) or, the government sector by those financial intermediaries whose liabilities are included in broad money. Broad money is defined as currency plus bank current deposits of the private non-bank sector, plus all other bank deposits of the private non-bank sector plus borrowings from the private sector by non-bank financial intermediaries (NBFIs), less the latter's holdings of currency and bank deposits.

LIBOR

The London Inter-Bank Offered Rate (LIBOR) is a reference rate based on the interest rates at which banks offer to transact with each other on an unsecured basis in the London market. The LIBOR reflects quotes by a panel of banks for maturities of up to 12 months for the Australian dollar, Canadian dollar, Danish krone, euro, Japanese yen, New Zealand dollar, Swedish krona, Swiss franc, UK Pound sterling, and the US dollar. The reference rates are set at 11.00 am London time.

liquidity

The capacity to sell an asset quickly without significantly affecting the price of that asset. Liquidity is also sometimes used to refer to assets that are highly liquid.

liquidity management

Activities within a financial institution to ensure that holdings of liquid assets (e.g. cash, bank deposits and other financial assets) are sufficient to meet its obligations as they fall due, including unexpected transactions.

LVR

Loan-to-valuation ratio

macroeconomy

The economy looked at as a whole or in terms of major components measured by aggregates such as gross domestic product, the balance of payments and related links, in the context of the national economy. This contrasts with microeconomics which focuses upon specific firms or industries.

margin loans

Loans which are made to investors to purchase financial assets, usually equities or units in managed funds. These assets are used as security for the margin loan. Margin loan clients are required to keep the ratio of borrowings to the value of underlying security below a pre-arranged level. When the ratio goes above this level, lenders will make a margin call, requiring the borrower to either repay some of the loan or provide additional security to support the loan.

margin payment

A payment made to meet a margin call, to cover an adverse movement in the price of physical assets, such as equities or units in managed funds, or derivatives, such as futures, options or swap contracts.

MMC

Money Market Corporation

monetary aggregates

A series of measures of the values of currency on issue, current deposits with banks, other deposits with banks, plus borrowings from the private sector by non-bank financial institutions (NBFIs) less currency and bank deposits by NBFIs. Components consist of: 'M1' defined as currency plus bank current deposits of the private non-bank sector; 'M3' defined as M1 plus all other bank deposits of the private non-bank sector; 'Broad money' defined as M3 plus borrowings from the private sector by NBFIs, less the latter's holdings of currency and bank deposits; 'Money base' defined as holdings of notes and coins by the private sector plus deposits of banks with the Reserve Bank of Australia (RBA) and other RBA liabilities to the private non-bank sector.

monetary policy

The setting of an appropriate level of the cash rate target by the Reserve Bank of Australia to maintain the rate of inflation in Australia between 2 and 3 per cent per annum on average over the business cycle.

money market

The market which deals in short-term discount securities such as Treasury notes, bank bills and promissory notes. Major participants in this market include the Reserve Bank of Australia, banks, superannuation funds, insurance companies, investment trusts, investment banks, building societies and large corporates.

MOU

Memorandum of Understanding. A statement specifying agreement relative to responsibilities and authorities on matters on common interest. For example MOUs exist between the Reserve Bank of Australia and the Australian Prudential Regulation Authority (APRA), and with the Australian Securities and Investments Commission (ASIC).

NASDAQ

National Association of Securities Dealers Automated Quotation. A US stock price index for companies listed on the NASDAQ exchange. Typically, these companies are in high technology-based sectors.

NBFIs

Non-bank financial institutions

NGF

National Guarantee Fund

NNPDC

National Note Processing and Distribution Centre. The primary functions of the NNPDC, which operates out of Note Printing Australia Limited, are: the despatch to banks of new and/or reissuable quality notes; the receipt from banks of unfit, surplus fit notes post peak periods and other notes required for quality control/authentication assessment; the processing and destruction of unfit and mutilated notes; the processing of notes required for assessment and the storage of notes awaiting despatch to banks.

Nominal interest rate

The nominal interest rate refers to the cost of borrowing money before adjustment for inflation i.e. it includes compensation for the expected erosion of the value of the borrowed funds due to inflation. It is the cost visible to the borrower, and is composed of the real interest rate plus inflation.

non-tradables

Non-tradables refers to things that are not readily exported or imported, like medical services, housing and haircuts. As such, their prices are largely determined domestically. By comparison, tradable items are things whose prices are largely determined on the world market like oil, motor vehicles and clothing. As such, the prices of tradable items are heavily influenced by exchange rate movements, whereas the prices of non-tradables largely reflect domestic factors.

NPA

Note Printing Australia Limited. Wholly owned subsidiary of Reserve Bank of Australia. Based at Craigieburn, Victoria, NPA prints currency notes for Australia and some other countries on polymer substrate.

nsa

not seasonally adjusted

numismatics

Numismatics is generally defined as the collecting of coins, commemorative or military medals and, more recently, the collecting of currency notes.

OECD

Organisation for Economic Co-operation and Development. Regarded as representing industrial market countries. It seeks to encourage economic growth, high employment and financial stability among member countries and contribute to the economic development of less-advanced members and non-member countries.

OFC

Offshore financial centre

offer

Price offered to buyers.

official reserve assets

The Reserve Bank of Australia's holdings of foreign exchange, Special Drawing Rights, Australia's shareholding in the International Monetary Fund (IMF) and gold.

OH&S

Occupational Health and Safety

OIS

Overnight indexed swap, a bilaterally traded, or over-the-counter (OTC), derivative in which one party agrees to pay the other party a fixed interest rate in exchange for receiving the average cash rate recorded over the term of the swap.

OPA

Official Public Account

ORA

Official reserve assets

OTC

over-the-counter

overnight loans

Loans, which are recallable, repayable or renegotiable the next day, usually by 11.00 am.

PAYE

Pay as you earn

PAYG

Pay as you go

PDS

Payment Delivery System

PIBA

Primary Industry Bank of Australia

Pillar 1

The New Basel Capital Accord, issued by the Basel Committee on Banking Supervision, aims to improve the flexibility and risk sensitivity of the existing Accord. The New Accord consists of three mutually reinforcing pillars. Pillar 1 sets out the framework for revised minimum capital requirements, building-in rewards for stronger and more accurate risk management.

Pillar 2

The New Basel Capital Accord, issued by the Basel Committee on Banking Supervision, aims to improve the flexibility and risk sensitivity of the existing Accord. The New Accord consists of three mutually reinforcing pillars. Pillar 2 proposes procedures for supervisory review of an institution's capital adequacy and internal risk assessment process.

Pillar 3

The New Basel Capital Accord, issued by the Basel Committee on Banking Supervision, aims to improve the flexibility and risk sensitivity of the existing Accord. The New Accord consists of three mutually reinforcing pillars. Pillar 3 recommends requirements aimed at enhancing market discipline through effective disclosure of information to market participants.

PIN

Personal Identification Number

polymer substrate

The polymer (polypropylene) sheeting on which Australian and a range of other countries' currency notes are printed.

PSB

Payments System Board. Created in 1998, within the Reserve Bank of Australia (RBA). The PSB is responsible for determining the RBA's payments system policy so as to best contribute to: controlling risk in the financial system; promoting the efficiency of the payments system; and promoting competition in the market for payment services, consistent with the overall stability of the financial system. Powers to carry out the PSB's policies are vested in the RBA.

PvP

Payment-versus-Payment

RBA

Reserve Bank of Australia. Australia's central bank, the body corporate successor to the Commonwealth Bank established in 1912; created under its new name by the Reserve Bank Act 1959.

RBA Repos

An intra-day repurchase agreement between an Exchange settlement account (ESA) holder and the Reserve Bank of Australia that is undertaken unilaterally by the ESA holder through the Austraclear System.

RBRF

Reserve Bank Reserve Fund. A general reserve which provides for events which are contingent and non-foreseeable, including to cover exceptional losses on the RBA's holdings of domestic and foreign securities that cannot be absorbed by its other resources; the RBRF also provides for potential losses from fraud and other non-insured losses. Amounts set aside for this reserve are determined by the Treasurer after consultation with the Board.

RDP

Research Discussion Paper. One of a series which makes the results of current economic research within the Reserve Bank of Australia (RBA) available to the public. Papers present preliminary results of research to encourage discussion and comment. The contents represent views of the authors and not necessarily those of the RBA.

Real interest rate

The real interest rate refers to the cost of borrowing money (i.e. the nominal interest rate) net of inflation. It takes account of the fact that part of the nominal interest that borrowers pay to lenders represents compensation for anticipated inflation. The remaining ‘real’ component better reflects the economic cost of borrowing and the return to lending.

Red Book

A publication entitled Payment Systems in Australia. Its aim is to contribute to the understanding of the payment and settlement system in Australia both domestically and internationally. The second revised edition was published in June 1999. 'Red Book' is not an exclusively Australian term. The original Red Book was 'Payment Systems in the Group of Ten Countries'. There have been a number of country Red Books since then, including Australia.

repo

Repurchase agreement. The vehicle whereby most Reserve Bank of Australia (RBA) domestic market operations are conducted. Repurchase agreements (usually called 'repos') involve the sale or purchase of securities with an undertaking to reverse the transaction at an agreed date in the future and at an agreed price. Repos provide flexibility in that they allow the RBA to inject liquidity on one day and withdraw it on another with a single transaction.

Reports on the Observance of Standards and Codes (ROSC)

IMF staff, in conjunction with the relevant authorities of the respective countries, have embarked on a series of Reports on the Observance of Standards and Codes (ROSC). These reports summarise the extent to which countries observe certain internationally recognised standards, focusing primarily on the areas of direct operational concern to the IMF. The World Bank has begun to prepare ROSCs in the areas of corporate governance and accounting and auditing, and is developing a template to begin assessments of insolvency and creditor rights.

repurchase agreement

The vehicle whereby most Reserve Bank of Australia (RBA) domestic market operations are conducted. Repurchase agreements (usually called 'repos') involve the sale or purchase of securities with an undertaking to reverse the transaction at an agreed date in the future and at an agreed price. Repos provide flexibility in that they allow the RBA to inject liquidity on one day and withdraw it on another with a single transaction.

Reserve Bank of Australia Bulletin

A monthly publication which contains economic commentary by the Reserve Bank of Australia, feature articles, speeches and a set of statistical tables. The full text of Bulletin articles plus statistical series, media releases and other matters of record published since September 1996 are available on-line.

Reserve Bank Registry of Inscribed Stock

Registry of holders of Commonwealth Government Securities comprising Treasury bonds and Treasury notes.

ReserveLink

A dial-up personal computer-based banking package developed by the Reserve Bank of Australia (RBA) to facilitate secure file transfer between the RBA and its banking customers. The service was established for smaller volume banking customers who do not have a dedicated communications link with the RBA.

RFC

Registered Financial Corporation

RITS

The Reserve Bank Information and Transfer System (RITS) was established in August 1991 and is operated by the Reserve Bank of Australia. RITS is Australia's Real-Time Gross Settlement (RTGS) system, which plays a central role in the Australian payments clearing and settlement system.

RITS is the means by which Exchange Settlement Accounts are accessed and membership is compulsory for all Australian-licensed banks and participants in the Reserve Bank's domestic market operations.

RMBS

Residential mortgage-backed securities

RP

Repurchase Agreement. The vehicle whereby most Reserve Bank of Australia (RBA) domestic market operations are conducted. Repurchase agreements (usually called 'repos') involve the sale or purchase of securities with an undertaking to reverse the transaction at an agreed date in the future and at an agreed price. Repos provide flexibility in that they allow the RBA to inject liquidity on one day and withdraw it on another with a single transaction.

RTGS

Real-time gross settlement. A payment system in which processing and settlement take place in real time (continuously).

S&P

Standard and Poor’s

sa

Seasonally adjusted. The process of seeking to eliminate seasonal patterns in a time series.

SCCI

Specialised Credit Card Institution

SDR

Special Drawing Right. Used as an international reserve asset to settle transactions between countries and help balance international liquidity. The value of the SDR is calculated by the International Monetary Fund (IMF) on the basis of a weighted basket of four currencies: US dollar; euro; Japanese yen; and UK pound. The IMF publishes the value of the SDR each day in terms of US dollars and the Reserve Bank of Australia provides an equivalent value in Australian Dollars.

SDRM

Sovereign debt restructuring mechanism. A proposal which was raised by the IMF in 2002 for a legal framework for the predictable and orderly restructuring of sovereign debt, analogous to the Chapter 11 bankruptcy procedures which are used in corporate debt restructuring in the United States.

securities

A financial instrument which represents a claim over real assets or a future income stream. Such instruments are usually tradeable. Examples of securities include bonds, bills of exchange, promissory notes, certificates of deposit and shares.

securitisation

Asset securitisation is the process of converting a pool of illiquid assets, such as residential mortgages, into tradeable securities.

settlement

The discharge of obligations arising from fund transfers between two or more parties.

SFE

Sydney Futures Exchange. The SFE is a futures and options exchange. It is a wholly-owned subsidiary of the ASX group.

SFECC

SFE Clearing Corporation. It provides central counterparty services for the SFE market. It is a wholly-owned subsidiary of the ASX group.

smart card

Also known as a chip card or IC (integrated circuit) card. A card containing one or more computer chips or integrated circuits for identification, data storage or special-purpose processing used to validate personal identification numbers (PINs), authorise purchases, verify account balances and store personal records.

SOLA

Statement of Liabilities and Assets. The weekly Reserve Bank of Australia balance sheet published each Friday, as at close of business the previous Wednesday.

solvency

The capacity of an entity to meet its financial obligations as they fall due. Solvency may be expressed as maintaining positive net-tangible assets.

solvent institutions

Institutions that maintain solvency (i.e. they can meet their financial obligations as they fall due).

Statement of Liabilities and Assets

The weekly Reserve Bank of Australia balance sheet published each Friday, as at close of business the previous Wednesday.

Statement on Monetary Policy

The Reserve Bank of Australia (RBA) issues a Statement on Monetary Policy four times a year. These statements assess current economic conditions and the prospects for inflation and output growth. These statements have replaced the Semi-Annual Statements on Monetary Policy and the Quarterly Reports on the Economy and Financial Markets, which were previously issued by the RBA.

STMM

Short-term Money Market

Sub-prime mortgage

While there is no precise definition of sub-prime mortgages, in the United States, they are typically loans made to borrowers with impaired credit histories, which might include one or more payment defaults, a previous loan foreclosure, or bankruptcy.

SWIFT

Society for Worldwide Interbank Financial Telecommunication. A co-operative organisation that operates a network for the exchange of payment and other financial messages between financial institutions.

SWIFT PDS

SWIFT Payment Delivery System

systemic risk

The risk that the failure of one participant in a payments system, or in financial markets generally, to meet its required obligations when due will cause other participants or financial institutions to be unable to meet their obligations (including settlement obligations in a transfer system) when due. Such a failure may cause significant liquidity or credit problems and, as a result, might threaten the stability of financial markets.

systemic risks

Events which may jeopardise financial system stability and cause harm to the real economy. For example, the Y2K problem was regarded as such a risk. They may include the risk that the failure of one participant in a payments system, or in financial markets generally, to meet their required obligations when due, will cause other participants or financial institutions to be unable to meet their obligations (including settlement obligations in a transfer system) when due. Such a failure may cause significant liquidity or credit problems.

systemic stability

The Reserve Bank of Australia has a general and longstanding responsibility for safeguarding the stability of the Australian financial system. In broad terms, financial system stability equates to smoothly functioning financial markets and the absence of financial disturbances that may threaten the health of the economy more broadly. The RBA can use its balance sheet to support a sound financial institution facing liquidity difficulties, should system stability be at risk.

tradables

Tradable items are things whose prices are largely determined on the world market like oil, motor vehicles and clothing. As such, the prices of tradable items are heavily influenced by exchange rate movements. By comparison, non-tradables refers to things that are not readily exported or imported, like medical services, housing and haircuts. As such, their prices are largely determined domestically.

Treasury adjustable rate bonds

Commonwealth Government securities with an adjustable interest/coupon rate, periodically reset according to movements in the Australian Bank Bill Swap Reference Rate.

Treasury capital-indexed bonds

Commonwealth Government securities with a payment stream that increases by an indexation factor reflecting changes in the rate of inflation. Indexing occurs on the principal value of the investment.

Treasury fixed-coupon bonds

Commonwealth Government securities with fixed maturity dates and twice-yearly interest or coupon payments. Coupon payments are fixed for the life of the bond at its first issue.

Treasury notes

Commonwealth Government Securities with a short term to maturity, issued at a discount to their face value with the difference (or discount) representing the return on the note. They were used primarily to meet the Government's need for within-year finance but have not been issued since 2003.

TWI

Trade-weighted index. The TWI is the weighted average value of the Australian dollar in relation to the currencies of Australia's trading partners. The base level was set at 100 in May 1970. It is published each day, specifying index levels as at 9.00 am, noon and 4.00 pm.

US$

US dollar

USD

US dollar

weighted average issue yield

The weighted average of successful yields at auction of Commonwealth Government securities. Yields are weighted by the share of the total amount sold that is allocated to each successful bidder.

WST

Wholesale Sales Tax. WST was superseded by the Goods and Services Tax introduced on 1 July 2000.

Y2K

Year 2000. The Year 2000 problem was the possibility that financial institutions' computer systems would fail on 1 January 2000 and spark a loss of public confidence in individual institutions or at worst, in the financial system as a whole. In the event, the arrival of Y2K was virtually incident-free.

yield

The expected rate of return expressed as a percentage of the net outlay or net proceeds of an investment, not of its face value.