Equity prices and exchange rates in these economies have fallen quite sharply. Taken together these developments have contributed to a pick-up in volatility in global financial markets over the past six months, after a lengthy period when volatility and risk pricing were unusually low. Even so, risk pricing in most markets remains well below the crisis-related peaks of a few years ago.
Implications of the global risk environment for Australia At this point it is useful to ask how these international sources of risk might affect the Australian financial system. Direct exposures of Australian banking institutions to the risk factors I have been describing are quite limited (Table 1).