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MONEY MARKET IN
SOUTH AFRICA VISÀ-VIS INDIA: A
COMPARISON
Supragya
Roll:875
B.B.A LL.B(Hons.)
Semester VI
WHAT ARE MONEY MARKETS?
Money markets are a segment of the financial
market in which financial instruments with high
liqui...
Money market securities consist of negotiable
certificates of deposit (CDs), bankers acceptances,
Treasury bills, commerci...
OBJECTIVE OF MONEY MARKETS
The objective of money market funds is to offer
investors a ‘safe haven’ for cash during times ...
WHAT INFLUENCES MONEY
MARKETS?


Monetary policy:





It is the process by which the government, central bank,
or mon...


Fiscal policy:








It is an economic term that defines the set of principles
and decisions of a government in s...
WHY MONEY MARKET? STRENGTHS






Gains on money market funds are usually tax exempt
because they invest mainly in gove...
WHY NOT MONEY MARKET? WEAKNESSES
Although returns on a money market fund are
higher than those on a savings account, they ...
MONEY MARKETS IN SOUTH
AFRICA
South African banks resisted the introduction of money
market funds for many years as they h...
In financial market terms, the money market exists
for the purpose of issuing and trading of short-term
instruments, that ...
INSTITUTIONS IN THE MARKET








Individual: They form an important and integral part of
the market through cash inc...
INSTRUMENTS IN THE MONEY
MARKET
There are two types of instruments which are
traded in the money markets in South Africa. ...
INTEREST INSTRUMENTS
Negotiable certificates of deposit (NCDs) - It is a
document evidencing a time deposit placed with a
...
DISCOUNT INSTRUMENTS
Bankers' acceptances (BAs) - Short-term debt instrument issued
by a firm that is guaranteed by a comm...
HOW ARE INSTRUMENTS
TRADED?
The system of trading recently changed in South
Africa. It has moved from a completely paper b...
REGULATION OF SOUTH
AFRICAN MONEY MARKET
The Financial Services Board (FSB) is the financial
regulatory agency of the gove...
MONEY MARKET IN INDIA







In India, money market is for short-term and long-term
funds with maturity ranging from o...
SOUTH AFRICAN MARKET VIS-À-VIS
INDIAN MARKET
A close analysis of the two markets reveals a lot of
similarities between the...
Manner of Trading: Both the countries have phased
out paper based trading and now have
computerized systems.
 Influencing...
THANK YOU
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Money markets in south africa

  1. 1. MONEY MARKET IN SOUTH AFRICA VISÀ-VIS INDIA: A COMPARISON Supragya Roll:875 B.B.A LL.B(Hons.) Semester VI
  2. 2. WHAT ARE MONEY MARKETS? Money markets are a segment of the financial market in which financial instruments with high liquidity and very short maturities are traded.  It is used by participants as a means for borrowing and lending in the short term, from several days to just under a year.  It is named after wholesale markets where banks lend and borrow large sums of money.  In the money markets, participants borrow and lend for short periods of time, typically up to 13 months. 
  3. 3. Money market securities consist of negotiable certificates of deposit (CDs), bankers acceptances, Treasury bills, commercial paper, municipal notes, federal funds and repurchase agreements (repos).  Money market trades in short term financial instruments. This contrasts with the capital market for longer-term funding which is supplied by bonds and equity.  Unlike money invested with banks there is no "fixed" yield. Instead the yield moves up and down in accordance with the interest earned on the investments in the money market fund.  The quoted yield on money market funds may fluctuate every working day. Investors in money market funds have to carry the possibility of a decrease in yields as well as an increase. 
  4. 4. OBJECTIVE OF MONEY MARKETS The objective of money market funds is to offer investors a ‘safe haven’ for cash during times of market uncertainty.  The yield on these investments may outperform other types of investments for short periods but is unlikely to do so over the long term.  Investors tend to take refuge in money markets and income funds when the markets are very volatile or use these funds as parking places while they decide where to invest for the longer term. 
  5. 5. WHAT INFLUENCES MONEY MARKETS?  Monetary policy:    It is the process by which the government, central bank, or monetary authority manages the money supply to achieve specific goals—such as constraining inflation or deflation, maintaining an exchange rate, achieving full employment or economic growth. Usually the goal of monetary policy is to accommodate economic growth in an environment of stable prices. Monetary policy can involve changing certain interest rates, either directly or indirectly through open market operations, setting reserve requirements, acting as a last-resort lender (i.e. discount window lending) or trading in foreign exchange markets.
  6. 6.  Fiscal policy:     It is an economic term that defines the set of principles and decisions of a government in setting the level of public expenditure and how that expenditure is funded. Fiscal policy and monetary policy are the macroeconomic tools that governments have at their disposal to manage the economy. Fiscal policy is the deliberate and thought out change in government spending, government borrowing or taxes to stimulate or slow down the economy. It contrasts with monetary policy, which describes policies concerning the supply of money to the economy.
  7. 7. WHY MONEY MARKET? STRENGTHS    Gains on money market funds are usually tax exempt because they invest mainly in government securities. However, any dividends are taxable. They are a good low-risk investment. Hence, money market funds are widely used defensive investments when the stock markets are declining. Money market fund managers place a client's funds on the best terms possible with institutions. As a result of this access to the wholesale market, money market funds usually offer a yield (a percentage return on your investment) higher than that offered by the retail banks.
  8. 8. WHY NOT MONEY MARKET? WEAKNESSES Although returns on a money market fund are higher than those on a savings account, they are still much lower than returns on equities or bonds.  Some money market securities are very costly which makes it difficult for individual investors to purchase them. 
  9. 9. MONEY MARKETS IN SOUTH AFRICA South African banks resisted the introduction of money market funds for many years as they had a monopoly on the investment of short-term funds.  Money market unit trusts were eventually introduced in South Africa in 1997.  Participants in the money market are the Reserve Bank, the commercial banks, big companies and large institutions like Eskom and Transnet.  Money market funds invest in institutional money market instruments that are often not available to retail investors. 
  10. 10. In financial market terms, the money market exists for the purpose of issuing and trading of short-term instruments, that is, instruments where the term remaining from the date when trading takes place to the date of redemption of the loan represented by die instrument (commonly referred to as the "term to maturity"), is of a short-term nature.  In theory, this term for classification as a money market instrument is given as one year.  In practice, however (especially in South Africa), instruments with a term to maturity of three years or less are normally classified as money market instruments although this is not a hard and fast rule. 
  11. 11. INSTITUTIONS IN THE MARKET     Individual: They form an important and integral part of the market through cash income and spending, investments and borrowings at banks and funds (e.g. unit trusts, pension funds, etc.) and other short-term funds which they invest and borrow. Government: It is involved in the market through the Treasury and the Reserve Bank. These interact with other players in the market such as the commercial banks, merchant banks, funds and corporate companies. Other financial institutions such as insurers, money market trusts, micro-lenders, etc. all play a part to keep the money market vibrant and liquid.
  12. 12. INSTRUMENTS IN THE MONEY MARKET There are two types of instruments which are traded in the money markets in South Africa. These are:  Interest Instruments: These pay interest on the amount invested where the interest is normally paid to the holder of the instrument (the lender) together with the redemption amount at redemption date. Interim interest payments may be made in certain cases.  Discount Instruments: These are the ones that do not pay interest on the amount invested but are issued at a discount on the nominal value (the redemption amount).
  13. 13. INTEREST INSTRUMENTS Negotiable certificates of deposit (NCDs) - It is a document evidencing a time deposit placed with a depository institution. It contains information about the amount of the deposit, date on which it matures, interest rate and the method under which the interest is calculated. Large negotiable NCDs are generally issued in denominations of $1 million or more. o Short-term government stock o Interest rate instruments issued by the private sector with terms to maturity of less than three years. o
  14. 14. DISCOUNT INSTRUMENTS Bankers' acceptances (BAs) - Short-term debt instrument issued by a firm that is guaranteed by a commercial bank. These are issued by firms as part of a commercial transaction. These are traded at a discount from face value on the secondary market which can be an advantage because it does not need to be held until maturity. o Treasury bills (TBs) - These are short-term securities. The Treasury sells bills at regularly scheduled auctions to refinance major issues. It also helps to finance current federal deficits. They further sell bills on an irregular basis to smooth out the uneven flow of revenues from corporate and individual tax receipts. o Commercial paper – It is a short-term unsecured promissory note issued by corporations and foreign governments. It is a low-cost alternative to bank loans for many large credit worthy issuers who are able to efficiently raise large amounts of funds quickly and without expensive registration. o Land Bank bills – Bills issued by the Land Bank. o
  15. 15. HOW ARE INSTRUMENTS TRADED? The system of trading recently changed in South Africa. It has moved from a completely paper based system to an electronic process.  The Over-The-Counter system has been phased out and replaced by the Computerized system.  The instruments are traded through the Johannesburg Stock Exchange (JSE) which is the sole license holder for trading in money market instruments in South Africa. 
  16. 16. REGULATION OF SOUTH AFRICAN MONEY MARKET The Financial Services Board (FSB) is the financial regulatory agency of the government of South Africa.  It is responsible for the non-banking financial services industry in South Africa.  It is an independent body that supervises and regulates the financial services industry in the public interest.  This includes the regulation of the biggest stock exchange in Africa the Johannesburg Stock Exchange and subsequently, the money market. 
  17. 17. MONEY MARKET IN INDIA     In India, money market is for short-term and long-term funds with maturity ranging from overnight to one year including financial instruments that are deemed to be close substitutes of money. Similar to developed economies, it 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. It 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 short-term 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.
  18. 18. SOUTH AFRICAN MARKET VIS-À-VIS INDIAN MARKET A close analysis of the two markets reveals a lot of similarities between the two market systems:  Maturity Period: The maturity period for both the systems is the same.  Regulations: There is a central statutory authority regulating both the markets in the two countries. However, there is minimum involvement of both the bodies.  Instruments: The types of instruments permitted for trading are the same.
  19. 19. Manner of Trading: Both the countries have phased out paper based trading and now have computerized systems.  Influencing Factors: The fiscal and monetary policies of both the countries affect the money market rates in the countries. 
  20. 20. THANK YOU
  • UzuegbunamChikeluba

    May. 7, 2019

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