T-Bills & other Govt. Securities• T-Bills are short term money marketinstruments issued by Govt. & backed byit.• Treasury bills were first authorized byCongress(U.S.A) in 1929.• T.Bills are secure and little or no rsik.• Maturity life is from 12 weeks to 12months.• No interest or interest free.• Sell at discounted rate.• T-Bills Exempt from Tax (U.S.A)
Commercial Papers• Commercial paper is a short-termunsecured promissory note issued bylarge,well known, creditworthycorporations.• To pay short-term debt e.g payroll.• No collaterized.• The maturity of commercial paper must beless than 270 days (9 months).• Average maturity life are 45 & 30-35 days.• High rate of interest/Discounted rate
Certificates of deposit• Certificates of deposit(CD) has been made bybanks for a fixed period of time.• When the period ended we receive the principleamount as well as interest amount.• Advantage for depositor is that it can be sell out to3rd party.• Advantage for bank is, it is for fixed time period &if a depositor withdrew amount before the time thebank gave him lower price.• Minimum denomination is 100,000 USD.• Maturity life is three months, six months,9 monthsetc.
Certificates of deposit• This yield of the security is calculated:-y=(PAR-P)/p..(360/n)Example:-A three month CD for 100000USDat 6% matures in 73 days.It is currentlytrading at 99000 USD.Rate of return onthis CD current offering isy=(100000-99000)/99000 (360/73)y=0.01 4.93=0.0493 or 4.93%
The interbank market loan• Interbank market refers to the subset ofbank-to-bank transactions that take.• Maturity is one are less than one week &mostly 14 days.• Commercial banks are required to keepreserves on deposits on central bank.• Interest rate charge.
Repurchase Agreement• Repurchase agreement are calledREPO.• repurchase agreement, is the saleof securities together with anagreement for the seller to buy backthe securities at a later date.• Buyer purchase securities fromseller.• REPO is fully collaterized.
Repurchase Agreement• open REPO:- No set of maturitydate but renewed each day uponagreement of both counterparties.• Term REPO:-Repo maturity date ismore than one day.• The participants of REPO are banksmoney market funds, non-financialinstitutions.• Maturity from 1 to 15 days & for1,3,6 months.
Repurchase Agreement• There is no Secondary market forREPOs.• REPO trasaction are negotiatedthrough telecommunicationsnetwork.• Dealers & Brokers perform therole of financial mkt. & receivecommission for such services.• Mkt. Participants:-Central Bankfinancial institutions & non-financial institutions.
International Money MarketSecurities• These markets in which the borrowing &lending denominated in a currency of someother country takes place.• In general,eurocurrency market instrumentsare the same as other money marketinstruments.• Eurocurrency instruments is any instrumentdenominated in a currency which differs fromthat of the country in which it traded.• Eurobanks are banks which specialize inEurocurrency business.
International Money MarketSecuritiesEuro Certificates of deposits (EuroCDs)• Euro Certificates of deposits (Euro CDs)are negotiable deposits with a fixed time tomaturity.• A short-term fixed loan fixed-rate timedeposit denominated in currency otherthan the local currency e.g US dollardeposit in a London bank.
International Money MarketSecuritiesTime deposits• Time deposits are non negotiable depositswith a fixed time to maturity.Due toilliquidity their yields tend to be higher thanthe yields on equivalent maturity ofnegotiable Euro certificates of deposits.• High rate of interest
International Money MarketSecuritiesInterbank Placements• Interbank Placements are short term oftenovernight interbank loans of Eurocurrencytime deposits.