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Summary of 5major market instruments

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Summary of 5major market instruments

  1. 1. SUMMARY OF MAJOR MARKET INSTRUMENTS… by FATIMA NAEEM KHADEEJA ANEES HAFIZ MUNIM BASHIR TARIQ MANZOOR
  2. 2. 'TREASURY BILL - T-BILL' A short-term debt obligation backed by the U.S. government with a maturity of less than one year.
  3. 3. PROCESS. T-bills are issued through a competitive bidding process at a discount from par, which means that rather than paying fixed interest payments like conventional bonds, the appreciation of the bond provides the return to the holder.
  4. 4. CONT…. T-bills are sold in denominations of $1,000 up to a maximum purchase of $5 million and commonly have maturities of one month (four weeks), three months (13 weeks) or six months (26 weeks).
  5. 5. BANKER’S ACCEPTANCE
  6. 6. BANKER’S ACCEPTANCE • A short term debt instrument issued by a firm guaranteed by commercial bank • This is a time draft that is drawn on and accepted by a bank (the importers bank).The accepting Bank is obliged to pay the holder of the draft after its maturity
  7. 7. BANKER’S ACCEPTANCE • The banker accepting drafts charges an all-in-rate that consist of discount plus the acceptance commission • Interest Rate 1.90%
  8. 8. BANKER’S ACCEPTANCE • Maturity date 30 to 180 days. • If the exporter does not want to wait for payment, it can request to sell BA in money market before its maturity date
  9. 9. ADVANTAGES • This is especially useful when the creditworthiness of a foreign trade partner is unknown. • does not need to be held until maturity • relatively safe
  10. 10. DEALER COMMERCIAL PAPER
  11. 11. DEFINITION OF COMMERCIAL PAPER “A short term unsecured negotiable instrument consisting of promissory notes with fixed maturity generally issued by companies as a means of raising short term debt issued at a discounted face value the issues promises a fixed amount at a future date but pledges no assets”
  12. 12. TYPES OF COMMERCIAL PAPER There are two major types of commercial 1. Direct paper 2. Dealer paper
  13. 13. TYPES DEFINITION 1. Direct paper is issued mainly by large finance companies and bank holding companies directly to the investor. 2. Dealer paper/Industrial paper is issued by security dealers on behalf of their corporate customers(mainly nonfinancial companies and smaller financial companies).
  14. 14. PARTICIPANTS • Issuers, • All private sector company, • Public sector units, non- banking companies etc, • Investors, • Individuals, banks, corporate.
  15. 15. MATURITIES AND RATE OF RETURN • Most commercial paper is issued at a discount from par, and yields to the investor are calculated by the bank discount method, just like Treasury bills.
  16. 16. GROWTH OF COMMERCIAL PAPER• • The volume of commercial paper has grown rapidly due to its relatively low cost and high quality, as well as the expanding use of credit enhancements.
  17. 17. COMMERCIAL PAPER ADVANTAGES • Commercial paper represents one way for large firms to borrow money for the short term. • Companies issue the commercial paper for less than its face value and buy back the paper at its face value • Commercial paper are cheaper than a bank loan.
  18. 18. COMMERCIAL PAPER DISADVANTAGES • It is available only to a few selected blue chip and profitable companies. • By issuing commercial paper, the credit available from the banks may get reduced. • Issue of commercial paper is very closely regulated by the RBI guidelines
  19. 19. ELIGIBILITY FOR ISSUE OF C.P. • The tangible net worth of the company, as per the latest audited balance sheet, is not less than Rs. 4 crore. • The working capital (fund-based) limit of the company from the banking system is not less than Rs.4 crore. • And the borrower account of the company is classified as a Standard Asset by the financing banks
  20. 20. • Definition A certificate of deposit with a minimum face value of $100000. These are guaranteed by the bank and can usually be sold in a highly liquid secondary market, but they cannot in before maturity. • Types 1) Dematerialized 2) Physical NEGOTIABLE CERTIFICATES OF DEPOSIT
  21. 21. • Revolution: The negotiable certificate of deposit revolutionized the world of finance. Introduced in 1961 by first National City bank of New York (Citibank), the flexible CD enabled large banks to quickly and efficiency raise funds for lending. They could now draw liquidity from investors as well as businesses and consumers. NEGOTIABLE CERTIFICATES OF DEPOSIT
  22. 22. • Market (money) • Major participant (issued by major money-center commercial banks to large investors) NEGOTIABLE CERTIFICATES OF DEPOSIT
  23. 23. • Riskiness (default risk depends on the strength of the issuing bank) • Original maturity (up to 1 year) • Interest rate (6.3) SECURITY CHARACTERISTICS
  24. 24. • Following lines shows, Who can subscribe Certificate of deposits Corporation Companies Trusts Individuals Associations funds ELIGIBILITY,MATURITY,ISSUEPRICE
  25. 25. The of certificate of deposits may be issued at discount on face value. Banks financial institutions are permitted to issue these on floating rate basis. The interest on floating rate certificate of deposits will have to be reset periodically. Banks must keep statutory reserve on the issue price certificate of deposits. Maturity of certificate of deposits should not be less than be 7 days and not more than one year. In case of financial ELIGIBILITY,MATURITY,ISSUEPRICE
  26. 26. The physical Certificate of Deposits are freely transferable By endorsement and delivery. In case of demitted Certificate of Deposits, it can be transferred in the same manner as other Dematerialized securities. In case of loss of Certificate of Deposits, duplicate Certificate may be issued only after: -A notice is given in at least one newspaper. -There has been lapse for 15 days from the date of notice -Invest or has to executes an indemnity bond TRANSFERABILITY,LOSSOFCERTIFICATE,SECURI TY
  27. 27. WHAT IS A MUTUAL FUND ? • IT IS A TRUST THAT POOLS THE SAVINGS OF A NUMBER OF INVESTORS WHO SHARE A COMMON FINANCIAL GOAL • PROFESSIONAL FUND MANAGERS THEN INVEST THESE FUNDS IN A WAY THAT HELPS INVESTORS ACHIEVE THEIR GOAL
  28. 28. • The portfolio of mutual fund is managed by a “Portfolio Manager” whose responsibility is to be invested in , and satisfies the desire of the investors • Every day, portfolio manager counts up the value of all fund’s holding, figures out how many shares have been purchased by share holders, and then calculates the Net Asset Value (NAV) of the mutual fund, the price of a single share of the fund on
  29. 29. NAV (NET ASSET VALUE) A fund’s NAV fluctuates along with the value of its underlying investments. The formula for NAV is: NAV = (Market Value Of All Securities Held By Fund+ Cash and Equivalent Holdings-Fund Liabilities ) / Total Fund Shares Outstanding
  30. 30. TYPES OF MUTUAL FUNDS By structure, there are two types of mutual funds, which are: • Open-end mutual funds • Closed-end mutual funds
  31. 31. SOURCES OF PROFIT GENERATION Dividend Capital Gains
  32. 32. MUTUAL FUND INDUSTRY IN PAKISTAN • Mutual fund were introduced in Pakistan in 1962,with the public offering of National Investment (Unit) Trust (NIT) which is an open- end mutual fund in the public sector. This was followed by the establishment, of the investment corporation of Pakistan (ICP) in 1966, which subsequently offered a series of closed-end mutual funds.
  33. 33. MUTUAL FUND (ASSET MANAGEMENT COMPANIES IN PAKISTAN) • NATIONAL INVESTMENT TRUST • NBP FULLERTON ASSET MANAGEMENT LIMITED • AKD INVESTMENT MANAGEMENT LTD • AL FALAH GHP INVESTMENT MANAGEMENT • AL-MEEZAN INVESTMENT MANAGEMENT LIMITED • AMZ ASSET MANAGEMENT LTD. • ARIF HABIB INVESTMENT MANAGEMENT LTD. • ASKARI ASSET MANAGEMENT LTD • HBL ASSET MANAGEMENT LTD. • UBL FUND MANAGERS LTD.
  34. 34. THANK YOU .

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