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MONEY MARKET Presented by – Group 4 Abhishek Pangaria Altaf Siddiqui Rajendra Inani Shikhar Mohan Tarandeep Singh Vaibhav ...
What is Money Market? <ul><li>Buying & selling of debt instruments maturing in one year or less </li></ul><ul><li>Highly l...
Investing in money markets <ul><li>Done usually through MM funds </li></ul><ul><li>Cost of borrower credit appraisal is hi...
Individual Sweep Accounts <ul><li>Multipurpose accounts with banks or stockbrokers with the assets used for paying current...
Interest rates & prices <ul><li>Rate maybe fixed or adjustable </li></ul><ul><li>Due to the short maturity period, interes...
Types of Instruments <ul><li>Commercial paper </li></ul><ul><li>Banker’s acceptance </li></ul><ul><li>Treasury bills </li>...
Commercial paper <ul><li>Short term debt of a private sector firm or govt. sponsored corporation </li></ul><ul><li>Term 90...
Banker’s acceptance <ul><li>Acceptance is a promissory note given by a non financial firm to a bank in return for a loan <...
Treasury Bills <ul><li>Referred as T-Bills </li></ul><ul><li>Issued by national governments </li></ul><ul><li>Maturity les...
Government agency notes <ul><li>Instruments floated by government sponsored agencies like development banks, housing finan...
Local government notes <ul><li>Notes issued by state governments or its agencies </li></ul><ul><li>Approval from the natio...
Inter Bank Loans <ul><li>Loans between non affiliated banks </li></ul><ul><li>Can be across international boundaries </li>...
Time Deposits <ul><li>Also called certificate of deposit or CD </li></ul><ul><li>These are interest bearing bank deposits ...
International Agency Paper <ul><li>Issued by world bank, Inter-American Development Bank and other similar organizations <...
Repos <ul><li>Short for repurchase agreements </li></ul><ul><li>A combination of 2 transactions, </li></ul><ul><ul><ul><ul...
Futures & the money market <ul><li>Futures used a tool for hedging and cash management </li></ul><ul><li>Interest rate ris...
Trading Operation <ul><li>All systems electronically connected </li></ul><ul><li>Banks & non bank dealer enter into the co...
Credit Ratings <ul><li>Rating agencies offer opinions about the credit worthiness of the borrower </li></ul><ul><li>Issuer...
Monetary Policy <ul><li>The central bank uses the money market to implement its monetary policy </li></ul><ul><li>It contr...
Central Bank Interest Rate <ul><li>In some countries the central banks are allowed to lend directly to the money markets <...
Spreads <ul><li>It is the difference between uncollateralized loans and repos </li></ul><ul><li>It informs about the credi...
Other terms <ul><li>Call rate / overnight rate – rate paid on overnight bank deposit </li></ul><ul><li>Prime rate / Prime ...
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Epgp(one year) 2009-10_fsr_group4_03.12.09

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Epgp(one year) 2009-10_fsr_group4_03.12.09

  1. 1. MONEY MARKET Presented by – Group 4 Abhishek Pangaria Altaf Siddiqui Rajendra Inani Shikhar Mohan Tarandeep Singh Vaibhav Samant
  2. 2. What is Money Market? <ul><li>Buying & selling of debt instruments maturing in one year or less </li></ul><ul><li>Highly liquid </li></ul><ul><li>Very low risk </li></ul><ul><li>RBI definition “ A market for short terms financial assets that are close substitute for money, facilitates the exchange of money in primary and secondary market”. </li></ul>
  3. 3. Investing in money markets <ul><li>Done usually through MM funds </li></ul><ul><li>Cost of borrower credit appraisal is high compared to returns & period </li></ul><ul><li>MM funds help diversify risk of individual companies </li></ul><ul><li>Reduce investor costs & risks </li></ul>
  4. 4. Individual Sweep Accounts <ul><li>Multipurpose accounts with banks or stockbrokers with the assets used for paying current bills, investing etc. </li></ul><ul><li>Idle cash is automatically ‘swept’ into money markets or overnight investments </li></ul>
  5. 5. Interest rates & prices <ul><li>Rate maybe fixed or adjustable </li></ul><ul><li>Due to the short maturity period, interest rate risks are low </li></ul><ul><li>Interest rates are low in line with the low risk profile of the instrument </li></ul><ul><li>Returns slightly higher than bank savings </li></ul>
  6. 6. Types of Instruments <ul><li>Commercial paper </li></ul><ul><li>Banker’s acceptance </li></ul><ul><li>Treasury bills </li></ul><ul><li>Government agency notes </li></ul><ul><li>Local government notes </li></ul><ul><li>Inter bank loans </li></ul><ul><li>Time deposits </li></ul><ul><li>International agency paper </li></ul><ul><li>Repos </li></ul><ul><li>Futures & the money markets </li></ul>
  7. 7. Commercial paper <ul><li>Short term debt of a private sector firm or govt. sponsored corporation </li></ul><ul><li>Term 90 days to 9 months </li></ul><ul><li>Typically used to fund working capital </li></ul>
  8. 8. Banker’s acceptance <ul><li>Acceptance is a promissory note given by a non financial firm to a bank in return for a loan </li></ul><ul><li>Banks resell these at a discount in the money market </li></ul><ul><li>Usually tied to specific goods or order </li></ul><ul><li>A method to use the strong credit standing of the bank </li></ul>
  9. 9. Treasury Bills <ul><li>Referred as T-Bills </li></ul><ul><li>Issued by national governments </li></ul><ul><li>Maturity less than 1 year </li></ul><ul><li>Form a large part of the money market traded instruments </li></ul>
  10. 10. Government agency notes <ul><li>Instruments floated by government sponsored agencies like development banks, housing finance, agri finance, etc </li></ul>
  11. 11. Local government notes <ul><li>Notes issued by state governments or its agencies </li></ul><ul><li>Approval from the national authorities required </li></ul><ul><li>Example tax anticipation notes </li></ul>
  12. 12. Inter Bank Loans <ul><li>Loans between non affiliated banks </li></ul><ul><li>Can be across international boundaries </li></ul><ul><li>Overnight loans </li></ul><ul><li>Maybe be used to feed demand for loans to customers or to meet reserves requirements </li></ul>
  13. 13. Time Deposits <ul><li>Also called certificate of deposit or CD </li></ul><ul><li>These are interest bearing bank deposits attracting penalty on premature withdrawal </li></ul>
  14. 14. International Agency Paper <ul><li>Issued by world bank, Inter-American Development Bank and other similar organizations </li></ul><ul><li>Borrowed from different countries </li></ul><ul><li>Use interest rates and exchange rates </li></ul>
  15. 15. Repos <ul><li>Short for repurchase agreements </li></ul><ul><li>A combination of 2 transactions, </li></ul><ul><ul><ul><ul><li>First, seller sell securities & promises to buy it back at a specified future date at a higher price </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Second, the repo is unwound by as the issuer buys back </li></ul></ul></ul></ul><ul><li>The return rate of the transaction is called repo rate </li></ul><ul><li>In the reverse repo the buyer and the seller are interchanged </li></ul>
  16. 16. Futures & the money market <ul><li>Futures used a tool for hedging and cash management </li></ul><ul><li>Interest rate risks can also be hedged </li></ul>
  17. 17. Trading Operation <ul><li>All systems electronically connected </li></ul><ul><li>Banks & non bank dealer enter into the contract committing to complete the transaction through clearing houses </li></ul><ul><li>Clearing houses are government agencies or cooperative institutions owned by the banks and dealers </li></ul><ul><li>Acts as custodian of the securities </li></ul><ul><li>Strives to make transactions real time </li></ul>
  18. 18. Credit Ratings <ul><li>Rating agencies offer opinions about the credit worthiness of the borrower </li></ul><ul><li>Issuer seeks rating before issuing the note </li></ul><ul><li>Credit ratings affect the interest rate offered on the security </li></ul><ul><li>Rating may be issued for an issuer as a whole or for individual instruments </li></ul>
  19. 19. Monetary Policy <ul><li>The central bank uses the money market to implement its monetary policy </li></ul><ul><li>It controls supply of money by altering the rates </li></ul>
  20. 20. Central Bank Interest Rate <ul><li>In some countries the central banks are allowed to lend directly to the money markets </li></ul><ul><li>These rates are generally less attractive than those available in the private sector </li></ul>
  21. 21. Spreads <ul><li>It is the difference between uncollateralized loans and repos </li></ul><ul><li>It informs about the credit worthiness of the borrower </li></ul>
  22. 22. Other terms <ul><li>Call rate / overnight rate – rate paid on overnight bank deposit </li></ul><ul><li>Prime rate / Prime lending rate / PLR – Rate charged to the best customers. It’s the lowest or floor rate offered by a bank </li></ul><ul><li>Mortgage rate – Changes in the mortgate rates are immediately passed on to the customers </li></ul>
  23. 23. Thank you

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