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Brailsford3eSM_Ch02 - Chapter 2 Australian financial...

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Copyright © 2006 Nelson Australia Pty Limited Chapter 2 Australian financial markets Learning objectives After the completion of this chapter, you should be able to: identify the major Australian financial markets understand the importance of these markets - via selected statistics describe the basic legal and physical environment in which the markets operate. be aware of the historical performance of each of the major Australian asset classes. identify the securities associated with each Australian asset classes. appreciate the basics of the Australian tax system, with particular emphasis on the dividend imputation system. Key points 1 The major Australian financial markets (and the assets commonly traded in each market) are the equity market (shares), money market (cash securities), bond market (fixed interest securities) and the property market (real estate assets). 2 The discussion focuses on the following key issues. How securities are traded in each market? How each market is regulated? What has the historical performance of each market been? What tax issues are associated with the disposal of securities in each market? Chapter outline 2.1 Introduction 1 This chapter is organised around the four major Australian financial markets. Note that the debt market classification is dealt with in its constituent parts; namely the money and bond markets. 2 These markets can be either formal in nature (such as the Australian Stock Exchange) or less formal (like the market for fixed interest). 2.2 Equity markets in Australia 1 The major equity market in Australia is the Australian Stock Exchange (ASX), formed in1987. It allows trading of long term equity investments. 2 Trading through SEATS system. Common types of trades include limit orders, market orders and short sales. 3 Regulation is via the Corporations Act 2001 and ASX self-regulation. 4 Historical equity performance measured through an index. These indices incorporate market-breadth (number of shares), weighting systems (equal, price or value-weighted), capitalisation changes (rights and/or bonus issues) and dividend effects.
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2 Investments: Concepts and Applications Solutions Manual Copyright © 2006 Nelson Australia Pty Limited 5 Australia operates a dividend imputation system whereby investors receive a tax rebate for tax already paid by the company. 2.3 Australian debt markets 1 Australian debt markets are comprised of money markets (where short-term pure-discount instruments are traded) and bond markets (where longer term coupon paying instruments are traded). 2 Examples of money market securities include bills of exchange (eg. bank accepted bills), promissory notes, certificates of deposit and treasury notes. Bond market securities include commonwealth government bonds, local or semi-government bonds, corporate bonds (eg.
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