Profile of money market in the phillipines vis à-vis india

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Profile of money market in the phillipines vis à-vis india

  1. 1.  A money market is a market for borrowing and lending of short-term funds. It deals in funds and financial instruments having a maturity period of one day to one year. It is a mechanism through which short-term funds are loaned or borrowed and through which a large part of financial transactions of a particular country or of the world are cleared.
  2. 2.  In money market transactions of large amount and high volume take place. It is dominated by small number of large players. In money market the players are :-Government, RBI, DFHI (Discount and finance House of India) Banks, Mutual Funds, Corporate Investors, Provident Funds, PSUs (Public Sector Undertakings), NBFCs (Non-Banking Finance Companies) etc.
  3. 3. The Money market in India is the money market for short-term and long-term funds with maturity ranging from overnight to one year in India including financial instruments that are deemed to be close substitutes of money.  Similar to developed economies the Indian money market is diversified and has evolved through many stages, from the conventional platform of treasury bills and call money to commercial paper, certificates of deposit, repos, forward rate agreements and most recently interest rate swaps 
  4. 4.  The Indian money market consists of diverse sub-markets, each dealing in a particular type of short-term credit. The money market fulfills the borrowing and investment requirements of providers and users of shortterm funds, and balances the demand for and supply of short-term funds by providing an equilibrium mechanism. It also serves as a focal point for the central bank's intervention in the market.
  5. 5. Organised Sector  Call and Notice Money Market  Treasury Bill Market  Commercial Bills  Certificate of Deposits  Commercial Papers Money Market  Mutual Funds  The REPO Market  DFHI Unorganised Sector  Indigenous Bankers  Money Lenders  NBFI 
  6. 6. In the sixties, the Philippine economy exhibited considerable growth where production expanded at a steady pace and the investment climate was regarded as generally favorable. Based on these sound economic considerations came the birth of the money market in the Philippines. More investment alternatives were offered to the public with the introduction of various money market instruments.
  7. 7. The Joint IMF-CBP Commission convened in 1971 whose recommendations were accepted by the President.  Of the various suggestions one was: “The supervisory reach of the Central Bank would reach to the Money Markets also.” 
  8. 8. The Money Market grew largely because of the Investment Houses in the 1960s, before which it was largely under-developed.  Prior to this it was unregulated and the interest rates were determined by the Usury Laws.  The large investors could avoid the interest and this led to the concentration of these instruments in the hands of the large investors 
  9. 9. An investment house driven money market grew by 34% in between 1966 – 1973  After the Central Bank started regulating the system, balance was restored into the system and the MM instruments were deemed deemed deposit substitutes.  Thus only after years of its disorganised functioning did the Money Market in the Phillipines get regulated. 
  10. 10.  Although it is the world's 12th most populous country, the Philippines savings rate of 19% to 23% of GDP is the lowest in the region. Around three quarters of the country’s population do not yet have a savings account. The Philippine fund industry is also the second smallest in the region.
  11. 11.  The Philippines is open to foreign portfolio capital investment. Foreigners may purchase publicly or privately issued domestic securities, invest in money market instruments, and open pesodenominated savings and time deposits
  12. 12. Inter Bank Call Loan: The Inter Bank Call Loan market is a system that permits banks with excess reserves over the required position for the day to lend out the same excess to reserve deficient banks. Issuer: BSP Term: One day although at times the term exceeds more than one day Other Requirements: Borrowing IBCL transactions with the BSP require the borrowing party to earmark securities as collateral in the ROSS account with the Bureau of Treasury. Alternately, lending with the BSP requires the BSP to earmark securities with an equivalent face value of the amount borrowed. IBCL transactions between banks and quasi-banks are on a clean basis.
  13. 13. Reverse Repurchase Agreement: A Reverse Repurchase Agreement (RRP) is defined where the BSP sells securities to a bank or financial institution that has quasi-banking licenses, with a commitment to buy this back on a specified date and specified rate. The RRP serves as a monetary tool of the BSP to control money supply using open market operations. Issuer: BSP Term: Subject to the discretion of the BSP oftentimes overnight, 14, and 30 days Other Requirements: Through the BSP RRP as its definition connotes in substance a borrowing transaction collateralized by a security. The securities that serve as collateral are usually in the form of Treasury Bills Special Series or Fixed Rate treasury notes. RRP transactions would require the BSP to earmark securities with an equivalent face value to the amount borrowed, regardless of the tenor of the instrument collateralized
  14. 14. Treasury Bills: Treasury Bills (Tbills) are direct and unconditional obligations of the national government. They are issued by the Bureau of Treasury (BTr). They carry a maturity of one year or less and can be traded in the secondary market before maturity.Treasury Bills are considered one of the primest investment instruments in the market. They are safe, liquid and offer attractive returns to investors. Issuer: National government Term : 91, 182, 364 days
  15. 15. Fixed Rate Treasury Notes: Fixed Rate Treasury Notes (FXTNs) are direct and unconditional obligations of the national government. They are issued by the Bureau of Treasury (BTr). They are interest bearing and carry a term of more than one year and can be traded in the secondary market before maturity.Fixed Rate Treasury Notes are considered one of the primest investment instruments in the market. They are safe, liquid and offer attractive returns to investors. Issuer: National government Term: 2, 5, 7, 10, 15, 25 years
  16. 16. Fixed Rate Treasury Notes: Retail Treasury Bonds (RTBs) are direct and unconditional obligations of the national government which primarily caters to the retail market or the end-users. They are issued by the Bureau of Treasury (BTr). They are interest bearing and carry a term of more than one year and can be traded in the secondary market before maturity. Retail Treasury Bonds are safe, liquid and offer attractive returns to investors. Issuer: National government Term: 3 and 5 years
  17. 17. Dollar Linked Peso Notes: Dollar Linked Peso Notes (DLPNs) are direct and unconditional obligations of the national government and are issued by the Bureau of Treasury (BTr). They are interest bearing and carry a term of more than one year and can be traded in the secondary market before maturity. The notes track the movement of the Philippine Peso and US Dollar exchange rate. Payments of interest and principal are linked to the movement of the exchange rate and computed based on the foreign exchange factor. Issuer: National government Term: 2 and 3 years
  18. 18. The money market continued to be generally liquid in 2008 despite the global financial turbulence that had escalated during the year. The volume of money market transactions (inclusive of placements with the BSP, interbank call loans, interbank swap transactions and Treasury bills) aggregated PHP 84,259 billion in 2008, 23% higher than the previous year’s level and the highest volume recorded in the last nine years. Growth was driven primarily by increased short-term placements with the BSP which rose markedly by more than 20% to PHP 76,217 billion. This notable rise in short-term placements with the BSP reflected banks’ preference to remain liquid amid generalised risk aversion and cautiousness given the challenging economic conditions. It could also be explained by the reduced demand for loans because of lower growth prospects.

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