Amanullah Trino MBA (2010-2011 Finance & Banking Rajshahi University Bangladeshhttp://www.facebook.com/amanullah.trino
What is Money market?What the Money Market does?Why is such a Market needed?The Need for a Money MarketWho are the Principal Borrowers and Lenders in the MoneyMarket?Who Participates in the Money Markets?The Goals of Money Market InvestorsWhat kind of risk do investors face in the financial markets?Money Market MaturitiesDepth and Breadth of the Money MarketMoney Market Instruments
What is Money market? The money market is the market for short- term (one year or less) credit. The money market is a component of the financial markets for assets involved in short- term borrowing and lending with original maturities of one year or shorter time frames.
The money market, like all financial markets, provides a channel for the exchange of financial assets for money. To meet short-term cash needs The money market is the mechanism through which holders of temporary cash surpluses meet holders of temporary cash deficits.
Why is such a Market needed?The money market arises because for most individuals and institutions, cash inflows and outflows are rarely in perfect harmony with each other, and the holding of idle surplus cash is expensive.To cover the wages and salaries of government employees, office supplies, repairs, and fuel costs as well as unexpected expense.
Need for short term funds by Banks.Outlet for deploying funds on short term basis . Optimize the yield on temporary surplus funds Regulate the liquidity and interest rates in the conduct ofmonetary policy to achieve the broad objective of price stability,
Corporate Borrowers & Cash-Management Customers Needing to Nonbank Government Invest Cash Surpluses Financial Treasuries Institutions(borrowing and (mutual funds, redeeming insurers, etc.) securities) Security Money Dealers & Center Brokers Banks Central Banks (supplying funds and information and promoting market stability)
Central BankCommercial Banks, Co-operative Banks and PrimaryDealers are allowed to borrow and lend.Financial Institutions, Mutual Funds, and certainspecified entities are allowed to access to Call/Noticemoney market only as lenders. Individuals, firms, companies, corporate bodies, trusts and institutions can purchase the treasury bills, CPs and CDs. Short-term investing for income and liquidity Short-term financing for short and permanent needs Large transaction size and telecommunication network
Safety Liquidity The opportunity to earn some interest income. Speed Because funds invested in the money market represent only temporary cash surpluses and are usually needed in the near future to meet tax obligation, cover wage and salary costs, pay stockholder dividends, and so one.
money market investors are especially sensitive to risk. Market risk – The risk that the market value of an asset will decline, resulting in a capital loss when sold. Also called interest rate risk. Reinvestment risk – The risk that an investor will be forced to place earnings from a security into a lower-yielding investment because interest rates have fallen. Default risk – The probability that a borrower fails to meet one or more promised principal or interest payments on a security.
Types of Investment Risk Inflation risk – The risk that increases in the general price level will reduce the purchasing power of earnings from the investment. Currency risk – The risk that adverse movements in the price of a currency will reduce the net rate of return from a foreign investment. Also called exchange rate risk. Political risk – The probability that changes in government laws or regulations will reduce the expected return from an investment.
Money market investments cover a relatively narrow range of maturities – one year or less. Original Maturity- The interval of time between the issue date of a security and the date on which the borrower promises to redeem it is the security Actual maturity- refers to the number of days, months, or years between today and the date the security
The money market is extremely broad and deep. It can absorb a large volume of transactions with only small effects on security prices and interest rates. The money market is also very efficient. Securities dealers, major banks, and funds brokers maintain constant contact with one another through a vast telephone and computer network and are hence alert to any bargains.
Certificate of deposit.Repurchase agreementsCommercial paperTreasury bill.Bankers Acceptance