In recent weeks, the Australian exchange has become the centre of attention for the banking industry in Australia, with questions being raised over the stability of its foreign exchange reserves and how it manages its business.
In the first of a two-part series, we look at how the Australian Exchange manages foreign exchange and how this affects its operations.
What is foreign exchange?
Foreign exchange is the difference between an amount in cash and a certain amount in property, such as a house or car.
The money is exchanged by the Bank of Australia (BoA) and its member banks for the goods and services of Australian residents.
It is a measure of the value of a transaction, so the more cash is involved, the better it is.
The Reserve Bank’s own figures indicate that the value in foreign currency held by the BoA was around $11.2 billion in the last financial year.
This compares with $7.8 billion in foreign exchange in the same period in 2014.
The BoA maintains a foreign exchange reserve of $5.3 billion.
In other words, if you hold cash in Australia you are unlikely to lose money by holding foreign currency.
The balance is held in a special fund, which is managed by the Reserve Bank.
This fund is not subject to the same scrutiny as other foreign exchange funds, which are audited annually and scrutinised by auditors.
There are a few other aspects to foreign exchange.
The foreign exchange rate is the value at which the BoAs foreign currency reserves are worth.
The value of Australian property is also used as a benchmark for foreign currency valuation.
The amount of money held by each bank is measured in foreign dollars.
It may be a dollar for a dollar, or a euro for a euro.
There is also a foreign currency interest rate, which determines how much money a bank can borrow from the Boas.
The interest rate is fixed at 4.5 per cent, and banks can borrow up to $1 billion.
The Bank of England and the Australian Federal Government’s central bank both use foreign exchange as a reference rate, and are known as the central banks of Australia.
The main foreign exchange market in Australia is in New Zealand, with an exchange rate of around $1.50.
However, the Reserve Banks of the United Kingdom and Canada have set their own rates.
For more information about foreign exchange, read our article on the topic.
What do the banks do with the money?
If you are a resident of New Zealand or the United States, you can use the Boa’s foreign exchange account for your goods and personal property, including a house, a car, a business and a farm.
But these items can be traded overseas or stored overseas.
For a property, it is typically sold at the auction house.
For business, it can be bought with your bank account.
If you sell a house overseas, you will be charged an auction price, which can range from $2,000 to $15,000.
For cars, they can be sold for up to 30 days at auction, and the buyer is usually charged a transfer fee.
For farmers, it could be worth thousands of dollars to sell your crop overseas, which you can then sell for a profit.
For farm animals, such in sheep, goats and cattle, it would typically cost around $25 to export them to Australia, or up to hundreds of dollars a head for a farm worker.
When does the money leave the exchange and go to Australia?
There are two ways in which money can be used in Australia.
One way is to deposit it at an Australian bank, and then it is moved by way of a bank transfer or bank transferable to the Boaz.
There can also be an overseas money market, in which overseas money is sold for money.
For example, if someone buys a house in Australia for $300,000 and wants to sell it abroad, the buyer will need to make a deposit and then send the money to the bank in Australia with a note from the bank stating the buyer’s intent to sell the house overseas.
If the seller does not do this, the bank will send the deposit to the buyer in the form of a cheque.
Thereafter, the seller will send it to the address on the cheque in Australia – the bank has to process it.
There may be several people involved in the process.
How much money do foreign exchanges move in Australia?
According to a 2015 report from the Australian Financial Review, foreign exchange turnover for the Boaias member banks in Australia was around £1.2 trillion ($2.8 trillion).
The Reserve Banks’ foreign exchange book balance at the end of 2016 stood at $541 billion.
However this figure excludes the Boajs foreign exchange balances held overseas.
The other way foreign exchange moves in Australia varies.
The International Monetary Fund has estimated that foreign exchange movements in Australia could total as much as $20 trillion