BY-CHANDNI ANAND, ROLL NO.-677 SIBANI SAXENA, ROLL NO.-689
Money Market-Money market means market where money or its equivalent can be traded. Money is synonym of liquidity. Money market consists of financial institutions and dealers in money or credit who wish to generate liquidity. It is better known as a place where large institutions and government manage their short term cash needs. For generation of liquidity, short term borrowing and lending is done by these financial institutions and dealers. Hence, money market is a market where short term obligations such as treasury bills, commercial papers and banker’s acceptances are bought and sold.
Money Market instrumentsInvestment in money market is done through money market instruments. Money market instrument meets short term requirements of the borrowers and provides liquidity to the lenders. Common Money Market Instruments are as follows: T reasury Bills C ertificate of Deposit B anker’s Acceptance
Greek Money Market Instruments Money market papers are securities with a short maturity. Classical money market instruments in Greece are certificates of deposit, medium term notes and term deposits. Of particular importance for short-term investments abroad are US money market instruments or paper, usually with terms of 3 to 6 months (Treasury bills, banker’s acceptances, commercial paper, finance paper and certificates of deposit issued in New York, as well as London certificates of deposit).
Greek short-term debt instruments account for EUR 3.8bn, which represents 0.05% of the total amount of outstanding short-term debt in the Eurozone (EUR 798.2bn – July 2003). Greece is therefore the second smallest market for such instruments within the Eurozone.
Greek Government Debt Since becoming the latest country to join the Euro, the Greek bond market developed significantly. The demand for Greek Government paper has increased drastically, thus the primary market for government paper was marked by an increase in securities issues. Factors such as the substantial increase in the public sector’s gross borrowing requirement and the upgrading of the country’s credit rating contributed to these developments. The nominal value of all types of government paper issued in 2002 rose to €32.1 billion, from €24.2 billion in 2001 and €26.8 billion in 2000
Treasury Bills Treasury Bills, one of the safest money market instruments, are short term borrowing instruments of the Central Government of the country issued through the Central Bank . They are zero risk instruments, and hence the returns are not so attractive. It is available both in primary market as well as secondary market. It is a promise to pay a said sum after a specified period. Greek Treasury Bills are issued as discount papers with a maturity of 13, 26 and 52 Weeks in regular auction announced by the Bank of Greece according to the auction calendar.
Government Bonds A government bond is a bond issued by a national government, generally promising to pay a certain amount (the face value) on a certain date, as well as periodic interest payments. Bonds are debt investments whereby an investor loans a certain amount of money, for a certain amount of time, with a certain interest rate, to a company or country. Greek Government Bonds are regularly issued or tapped as either fixed of floating rate instruments according to the quarterly announced auction schedule.
Since the year 2003 the Greek Ministry of Finance has also issued an inflation-index linked bond with the maturity of 22 years for the first time, where the annual coupon payment is linked to harmonized European inflation index. Fixed Coupon instruments are issued as 3, 5, 7, 10, 15 or 20 Year paper. Floating Rate Issues The rate of the floating Coupon is based on the yield of the actual 6 or 12 Month Greek Treasury Bills, depending on the chosen reference T-Bill plus the quoted margin. Therefore the fixing of the coupons is annual or semi-annual.
Mortgage Bonds A mortgage bond is a bond backed by a pool of mortgages on a real estate asset such as a house. More generally, bonds which are secured by the pledge of specific assets are called mortgage bonds. Even though the legal framework for issuing mortgage bonds meets the requirements of the European Union, the primary and secondary market for mortgage bonds in Greece are hardly developed. High Interest rates in the 90’s and the tax situation for non- government issuers are the main reasons why mortgage bonds do not play a significant role on the Greek capital market.
Euro Certificate of Deposit Instrument for the notaries recording of time deposits. They are issued, principally by banks, in high face values with different terms and are redeemed at face value upon maturity. Their terms are normally 3 to 12 months, but may be as much as 5 years. In addition to fixed-interest CDs, there are CDs attracting variable interest rates as well.
Other Money MarketInstruments in Greece European Term Deposits- Savings account or certificate of deposit held in a financial institution, usually a bank, for a fixed term or with the understanding that the customer can withdraw only by giving advanced notice. European Medium Term Notes- Debt instrument with medium maturity issued on the Euro money market.
Repos-The Repo or the repurchase agreement is used by the government security holder when he sells the security to a lender and promises to repurchase from him overnight. Hence the Repos have terms raging from 1 night to 30 days. They are very safe due to government backing. Floating Rate Notes (FRNs)-Debt instrument with an initial maturity longer than one year and shorter than 10 years the payment of which depends on a FRN depending on short-term interest rates.
Bankers Acceptance- It is a short-term credit investment. It is guaranteed by a bank to make payments. The Bankers Acceptance is traded in the Secondary market. The bankers acceptance is mostly used to finance exports, imports and other transactions in goods. The bankers acceptance need not be held till the maturity date but the holder has the option to sell it off in the secondary market whenever he finds it suitable.