1. Prepared for: Dr. Rosemaliza Bt Ab Rashid Prepared by: Ulugbek (802522) WFF 5023 – Conventional and Islamic financial markets, instruments and institutions 05.08.10 University Utara Malaysia Conventional Money Markets
13. 05.08.10 Usually the money or near-money traded in this market is referred to as the EUROCURRENCY. What is the Money Market? ► Eurodollar ► Euroyen ► Eurofranc ► etc The External (Foreign) Money Market (cont.)
14. What is the Money Market? 05.08.10 EUROCURRENCY ▪ indicates only a geographical area where the market exists ▪ does not identify the exact country where the foreign currency market occurs ▪ country of borrower, however, is important -b’coslocal regulations may make it impossible for borrower to repay the loan -political risk, cross-border risk, sovereign risk
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16. 05.08.10 Current situation in International Money Markets: LIBOR, the London Interbank Offered Rate, is the most active interest rate market in the world. It is determined by rates that banks participating in the London money market offer each other for short-term deposits. LIBOR is used in determining the price of many other financial derivatives, including interest rate futures, swaps and Eurodollars. Due to London's importance as a global financial center, LIBOR applies not only to the Pound Sterling, but also to major currencies such as the US Dollar, Swiss Franc, Japanese Yen and Canadian Dollar. What is LIBOR? ?
17. 05.08.10 Current situation in International Money Markets: LIBOR, other interest rate indexes Source: www.bankrate.com This week Month ago Year ago Bond Buyer's 20 bond index 4.89 5.13 4.66 FNMA 30 yr Mtg Com del 60 days 4.69 4.63 6.19 1 Month LIBOR Rate 0.47 0.41 3.13 3 Month LIBOR Rate 1.25 1.18 3.09 6 Month LIBOR Rate 1.77 1.68 3.06 Call Money 2.00 2.00 4.75 1 Year LIBOR Rate 2.08 1.92 2.82
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21. 05.08.10 Current situation in International Money Markets: 1 Year U.S. Treasury Securities Yield Forecast 1 Year Maturity Constant Maturity Rate. Percent Average of Month. Source: www.bankrate.com Month Date Forecast Value 50%Correct +/- 80%Correct +/- 0 Dec 2008 0.490 0.00 0.00 1 Jan 2009 0.42 0.51 0.84 2 Feb 2009 0.44 0.62 1.03 3 Mar 2009 0.48 0.71 1.17 4 Apr 2009 0.58 0.77 1.27 5 May 2009 0.62 0.82 1.36 6 Jun 2009 0.68 0.87 1.44 7 Jul 2009 0.73 0.91 1.50
22. 05.08.10 Current situation in International Money Markets: Five Year U.S. Treasury Note Yield Forecast 5 Year Maturity Constant Maturity Rate. Percent Average of Month. Month Date Forecast Value 50%Correct +/- 80%Correct +/- 0 Dec 2008 1.520 0.00 0.00 1 Jan 2009 1.47 0.49 0.82 2 Feb 2009 1.40 0.61 1.00 3 Mar 2009 1.43 0.69 1.13 4 Apr 2009 1.56 0.75 1.24 5 May 2009 1.74 0.80 1.32 6 Jun 2009 1.92 0.84 1.40 7 Jul 2009 2.03 0.88 1.46 8 Aug 2009 2.14 0.92 1.52
