Payment Orders: payment instructions that can be used to settle transactions.Payment orders are instructions (mainly) to an ADI to pay the stated amount to the nominated party.

2.1 OverviewADIs (Authorised Deposit-taking Institutions) pay each other with exchange settlement funds, known as ES funds, which they hold at the RBA for the purpose of settling their payment obligations. Each ADI holds funds with the RBA in an exchange settlement account (ESA). The RBA deposit and withdraw ES funds when requested to do so. Payment orders are categorised in two:1. Wholesale payment orders - mainly the large-value payment orders used to settle financial market transactions. (Real-time gross settlement)2. Retail payment orders - which are used to settle all other payments, most of which are for small amounts. (The net deferred system)

The DNS (deferred net settlement) poses settlement risk because ADIs that are owed net payments do not receive the ES funds until 9 am the next business day.The cleared amounts are considerably less than the gross value of deposited retail payment orders, which reduces the amounts exposed to settlement risk.

~2.2.2(b) Direct entiresDirect entries allow businesses to make payments to the accounts of large groups such as clients and employees, and to receive payments from such groups (known as direct debit)

2.3 The wholesale payment systemA separate system, know as real-time gross settlement (RTGS) was introduced by RBA […] to

settle wholesale payments […] mainly from financial market transactions (as well as transfers among ADIs and between ADIs and RBA) […] Payment instructions are fed into RTGS which arranges them in a queue. RTGS processes each one of them individually.

An RBA repo is an interest-free loan of ES funds in which the RBA purchases eligible securities from an ADI on the basis that they will be repurchased by the ADI at the same price later that day.

2.4 Managing ES funds

Funds will have higher interest rates in the inter-bank overnight market […] a small segment of the money market that specialises in holding funds on a 24-hour basis that can readily be moved into ESAs and so serve as an ‘overflow’ storage for ADIs’ reserves of ES funds.Interest rate in inter-bank market is known as the cash rate. The RBA sets the cash rate target to implement monetary policy.

The RBA’s monetary policy requires it to keep the cash rate in line with its target rate the Bank will conduct open market operations (market operations) […] when the financial systems has too much liquidity the Bank will sell securities, when system is in deficit (short of liquidity) it will buy securities.