Modern Money Market Instruments

1. MODERN MONEY
MARKET
INSTRUMENTS.

2. INTRODUCTION.
▶ The money market is the arena in which financial
institutions make available to a broad range of
borrowers and investors the opportunity to buy and sell
various forms of short-term securities. There is no physical
"money market." Instead it is an informal network of
banks and traders linked by telephones, fax machines,
and computers
▶ There are several money market instruments, including
treasury bills, commercial paper, bankers' acceptances,
deposits, certificates of deposit, bills of exchange,
repurchase agreements, federal funds, and short-lived
mortgage- and asset-backed securities.

3. WHAT IS A ‘CERTIFICATE OF
DEPOSIT-CD’?
▶ A certificate of deposit (CD) is a savings certificate with
a fixed maturity date, specified fixed interest rate and
can be issued in any denomination aside from minimum
investment requirements. A CD restricts access to the
funds until the maturity date of the investment. CDs are
generally issued by commercial banks and are insured
by the FDIC up to $250,000 per individual.

4. BREAKING DOWN 'CERTIFICATE OF
DEPOSIT – CD’
▶ Early Withdrawal Penalty
▶ Example of a Certificate of Deposit
▶ Types of CDs Available
▶ Theory Behind CDs

5. INTER-BANK PARTICIPATION
CERTIFICATES.
▶ short-term instruments
▶ short-term liquidity
▶ An instrument whereby a bank can sell to a third party a
part or all of a loan made by a bank to a client.
▶ Popularity lead the PC scheme to be replaced with
Inter Bank Participation (IBPs)
▶ Two types of IBPs-
1. On risk sharing basis
2. Without risk sharing

6. RECENTLY INTRODUCED SECURITIES.
1. CASH MANAGEMENT BILLS
▶ short term bills issued by central government to meet
its immediate cash needs.
▶ The bills are issued by the RBI on behalf of the
government.
2. DATED GOVERNMENT SECURITIES
▶ longer term securities and carry a fixed or floating
coupon
(interest rate) paid on the face value, payable at fixed
time period.
▶ The Public Debt Office (PDO) of the RBI acts as the
registry / depository of Government securities.

7. RECENTLY INTRODUCED SECURITIES.
1. INTER CORPORATE BONDS
▶ unsecured borrowing by corporates and FIs from other
corporate entities registered under the Companies Act
1956.
▶ The corporate having surplus funds would lend to
another corporate in need of funds.
2. PASS THROUGH CERTIFICATES
▶ A pass-through certificates (PTC) is an instrument that
evidences the ownership of two or more equipment
trust certificates.
▶ Equipment trust certificates may be bundled into a
pass-through structure as a means of diversifying the
asset pool and/or increasing the size of the offering.

8. COMMERCIAL PAPERS.
▶ Unsecured, short term debt
▶ Issued by large credit worthy corporations
▶ Interest cost less than interest on bank loan
▶ Used to fund working capital
USA-270 days maturity
ECP-364 days maturity
▶ Most issues mature in 90 days
▶ Issued at a discount

9. ADVANTAGES & DISADVANTAGES OF
COMMERCIAL PAPERS
ADVANTAGES
▶ Quick & cost effective way
▶ Cheaper than a bank loan
▶ Reduces cost of capital
▶ Wide range of maturity
▶ Exempt from SEC
DISADVANTAGES
▶ Available only to a few companies
▶ Limited amount can be raised
▶ Extending the maturity is not possible
▶ Rollover risk

10. REPURCHASE AGREEMENT.
➢ Short term
borrowing for
dealers in G-secs
➢ Very low interest
rate
➢ Buyer-Short term
lender
Seller-Short term
buyer
Security-collateral

11. REPO AGREEMENT
ADVANTAGES
❑ For Cash Investors
a. Security
b. Liquidity
c. Yield
❑ For Borrowers
a. Easy To Arrange
b. Liquidity
DISADVANTAGE
S
❑ Yield
❑ Administration
Costs
❑ Legal Costs

12. BANKER’S
ACCEPTANCE
▶ A Banker's acceptance, or BA, is a promised future
payment, or time draft, which is accepted and
guaranteed by a bank and drawn on a deposit at
the bank.
▶ The banker's acceptance specifies the amount of
money, the date, and the person to whom the
payment is due.

13. WHAT IS COLLATERALIZED BORROWING
AND LENDING OBLIGATION (CBLO)?
▶ CBLO is a discounted instrument available in electronic
book entry form for the maturity period ranging from one
day to one year. The CCIL provides the Dealing System
through Indian Financial Network (INFINET) and
Negotiated Dealing System for participating in the
market.

14. WHAT IS CBLO MARKET?
▶ The Collateralized Borrowing and Lending Obligation (CBLO)
market is a money market segment operated by the Clearing
Corporation of India Ltd (CCIL). In the CBLO market, financial
entities can avail short term loans by providing prescribed
securities as collateral.
WHO ARE THE PARTICIPANTS IN THE CBLO
MARKET?
▶ Institutions participating in CBLO are entities who have either
no access or restricted access to the inter -bank call money
market. Nationalized Banks, Private Banks, Foreign Banks, Co-
operative Banks, Insurance Companies, Mutual Funds, Primary
Dealers, etc., are eligible for CBLO membership.

15. What is an 'Eurodollar Bond?
Private organizations, international syndicates and
even governments, who are in need of foreign
denominated borrowings for a specified duration,
find Eurobond suitable for their needs.
A Eurodollar bond is a U.S.-dollar denominated bond issued by an
overseas company and held in a foreign institution outside both the
U.S. and the issuer's home country.
Who can issue Eurodollar bonds?

16. FLOATING RATE NOTES.
▶ A debt instrument with an interest rate that varies based
on a certain benchmark.
▶ Common floating-rate note benchmarks include LIBOR,
the federal funds rate, and the U.S. Treasury bill rate.
▶ Floating-rate notes can be callable or non-callable
▶ Floating-rate notes may also have what's known as a
"cap" or "floor."

17. HOW DO FLOATING-RATE NOTES WORK?
▶ Floating-rate notes are issued by both government
entities and private corporations, and their interest
rates change at specified intervals based on a certain
benchmark
▶ For example:
A floating-rate note might be issued with a maturity of
two years and an interest rate that resets quarterly based
on the three-month LIBOR rate plus 0.2%. As of this writing,
the three-month LIBOR rate is 0.66%, which means the
note would pay 0.86% for its first quarter after its issuance.
If the three-month LIBOR were to rise to 1% after one
quarter has passed, then the note's interest rate would
reset to 1.2%.

18. CONCLUSION.
▶ Money Market transactions involve short-term
instruments with a maturity of one year or less.
▶ Money market securities are very liquid, and are
considered very safe. As a result, they offer a lower
return than other securities.
▶ Thus these money market instruments help in Financing
trade, Financing industry.
▶ These are also Profitable investments that aid in Self-
sufficiency of commercial banks and are a great source
of help to the central bank.

19. THANK YOU.
▶ DONE BY
▶ YASHVI BHANSALI -4
▶ DHRUMI DOSHI-10
▶ KRISHA SHAH-61
▶ RIYA SHAH-62
▶ JUHI SHETH-65
▶ RIYA VANIGOTA-70