Financial markets allow individuals and institutions to trade financial assets like stocks and bonds. There are different types of financial markets categorized by maturity and liquidity of securities. Money markets facilitate short-term lending under 1 year through instruments like treasury bills. Capital markets facilitate long-term lending over 1 year through bonds, mortgages, and stocks. Market prices reflect available information so markets are efficient when prices incorporate all public information. Interest rates balance supply and demand in the market.
The document provides information about money markets and capital markets. It defines money markets as markets for lending short-term funds using instruments like commercial bills, government securities, and bankers' acceptances. It then discusses various components of money markets like call money markets, functions like transferring funds and implementing monetary policy, and characteristics of developed versus underdeveloped money markets. It also discusses capital markets, where individuals and institutions trade financial securities, and their roles in mobilizing savings and encouraging economic growth.
Role of financial markets and institutions ch.1 (uts)Rika Hernawati
This chapter discusses the role of financial markets and institutions. It begins by outlining the function of financial markets in facilitating the transfer of funds from savers to borrowers. It then describes the segments of financial markets, including direct and indirect financing. It also discusses the types of financial markets such as money markets, capital markets, primary and secondary markets. The chapter concludes by examining the various roles of financial institutions, such as commercial banks, savings institutions, securities firms and insurance companies, in connecting savers and borrowers in financial markets.
Government securities are tradable debt instruments issued by the Central Government and State Governments to finance fiscal deficits and public development programs. They are issued by the Reserve Bank of India on behalf of the government. Government securities include Treasury bills and State Development Loans. They are needed to finance government functions like infrastructure creation and maintenance. Government securities are issued at face value, carry no default risk due to sovereign guarantee, offer high liquidity, and provide interest payments semi-annually. Major participants in the government securities market include banks, financial institutions, companies, mutual funds, and individuals.
Presenting this set of slides with name - Financial Market Instruments Powerpoint Presentation Slides. This deck consists of total of thirtyseven slides. It has PPT slides highlighting important topics of Financial Market Instruments Powerpoint Presentation Slides. This deck comprises of amazing visuals with thoroughly researched content. Each template is well crafted and designed by our PowerPoint experts. Our designers have included all the necessary PowerPoint layouts in this deck. From icons to graphs, this PPT deck has it all. The best part is that these templates are easily customizable. Just click the DOWNLOAD button shown below. Edit the colour, text, font size, add or delete the content as per the requirement. Download this deck now and engage your audience with this ready made presentation.
Treasury bills are short-term promissory notes issued by the government of India to finance its short-term borrowing needs. There are two types of treasury bills - ordinary bills which are freely tradable, and ad-hoc bills which are non-tradable and issued only to the RBI. Treasury bills are issued in 91-day, 182-day and 364-day maturities through weekly and fortnightly auctions. While treasury bills offer safety and liquidity, their yields tend to be low making them less attractive compared to other government securities.
Money market instruments are traded in a market where short-term borrowing and lending occurs between financial institutions and dealers. Common money market securities include Treasury bills, commercial paper, negotiable certificates of deposit, repurchase agreements, and federal funds. Treasury bills are government-backed securities issued in maturities of up to one year through weekly auctions. They provide a safe investment for liquidity purposes.
The document provides an overview of financial markets and systems. It discusses the functions of financial markets, types of markets including stock markets, bond markets, and money markets. It also describes market participants, types of financial institutions like commercial banks and their roles, and financial instruments. Financial regulation and Bangladesh's financial system are also briefly covered.
Financial markets allow people and entities to trade financial securities and commodities. They provide a place for buyers and sellers to come together and exchange these assets. Securities traded include stocks, bonds, and derivatives, while commodities can be precious metals or agricultural goods. Financial markets have important functions such as transferring funds from savers to borrowers, providing liquidity for securities, and disseminating economic information. They play a key role in allocating resources in a market economy.
The document provides information about money markets and capital markets. It defines money markets as markets for lending short-term funds using instruments like commercial bills, government securities, and bankers' acceptances. It then discusses various components of money markets like call money markets, functions like transferring funds and implementing monetary policy, and characteristics of developed versus underdeveloped money markets. It also discusses capital markets, where individuals and institutions trade financial securities, and their roles in mobilizing savings and encouraging economic growth.
Role of financial markets and institutions ch.1 (uts)Rika Hernawati
This chapter discusses the role of financial markets and institutions. It begins by outlining the function of financial markets in facilitating the transfer of funds from savers to borrowers. It then describes the segments of financial markets, including direct and indirect financing. It also discusses the types of financial markets such as money markets, capital markets, primary and secondary markets. The chapter concludes by examining the various roles of financial institutions, such as commercial banks, savings institutions, securities firms and insurance companies, in connecting savers and borrowers in financial markets.
Government securities are tradable debt instruments issued by the Central Government and State Governments to finance fiscal deficits and public development programs. They are issued by the Reserve Bank of India on behalf of the government. Government securities include Treasury bills and State Development Loans. They are needed to finance government functions like infrastructure creation and maintenance. Government securities are issued at face value, carry no default risk due to sovereign guarantee, offer high liquidity, and provide interest payments semi-annually. Major participants in the government securities market include banks, financial institutions, companies, mutual funds, and individuals.
Presenting this set of slides with name - Financial Market Instruments Powerpoint Presentation Slides. This deck consists of total of thirtyseven slides. It has PPT slides highlighting important topics of Financial Market Instruments Powerpoint Presentation Slides. This deck comprises of amazing visuals with thoroughly researched content. Each template is well crafted and designed by our PowerPoint experts. Our designers have included all the necessary PowerPoint layouts in this deck. From icons to graphs, this PPT deck has it all. The best part is that these templates are easily customizable. Just click the DOWNLOAD button shown below. Edit the colour, text, font size, add or delete the content as per the requirement. Download this deck now and engage your audience with this ready made presentation.
Treasury bills are short-term promissory notes issued by the government of India to finance its short-term borrowing needs. There are two types of treasury bills - ordinary bills which are freely tradable, and ad-hoc bills which are non-tradable and issued only to the RBI. Treasury bills are issued in 91-day, 182-day and 364-day maturities through weekly and fortnightly auctions. While treasury bills offer safety and liquidity, their yields tend to be low making them less attractive compared to other government securities.
Money market instruments are traded in a market where short-term borrowing and lending occurs between financial institutions and dealers. Common money market securities include Treasury bills, commercial paper, negotiable certificates of deposit, repurchase agreements, and federal funds. Treasury bills are government-backed securities issued in maturities of up to one year through weekly auctions. They provide a safe investment for liquidity purposes.
The document provides an overview of financial markets and systems. It discusses the functions of financial markets, types of markets including stock markets, bond markets, and money markets. It also describes market participants, types of financial institutions like commercial banks and their roles, and financial instruments. Financial regulation and Bangladesh's financial system are also briefly covered.
Financial markets allow people and entities to trade financial securities and commodities. They provide a place for buyers and sellers to come together and exchange these assets. Securities traded include stocks, bonds, and derivatives, while commodities can be precious metals or agricultural goods. Financial markets have important functions such as transferring funds from savers to borrowers, providing liquidity for securities, and disseminating economic information. They play a key role in allocating resources in a market economy.
Government securities (G-Secs) are debt instruments issued by the Indian government to fund its fiscal deficit. There are two main types: treasury bills for short-term borrowing of less than 1 year, and government bonds or dated securities for long-term borrowing of 1 year or more. G-Secs are issued via auction on the NDS platform and traded on a yield basis. Major players are banks, primary dealers, and institutional investors like insurance companies. The Clearing Corporation of India acts as the central counterparty for all G-Sec transactions.
Qarant Invest was established in August 2011. It has 7 staff members, 3 of whom are CFA candidates. It has a brokerage license and offers brokerage services on foreign financial markets. It signed memorandums with the American Alumni Association and Qafqaz University. It launched offline brokerage services and will launch its Qarant FX online trading platform in January 2012.
Securities can be classified as either debt securities, such as bonds, or equity securities, such as stocks. Debt securities refer to financial instruments that represent money borrowed and include government bonds, corporate bonds, certificates of deposit, and collateralized debt obligations. Equity securities provide dividend income but can fluctuate in value with economic changes and the company's fortunes. Derivatives derive their value from an underlying asset, index, or interest rate, and are used for hedging risks or speculating; common derivatives include forwards, futures, options, and swaps.
Financial institutions and markets notes as per BPUT syllabus for MBA 2nd sem...Venkat Kothakota
The document provides information on the Indian financial market and its various components. It discusses the money market and capital market as the two main organized financial markets in India. The money market is further divided into unorganized and organized segments. The unorganized segment includes money lenders, indigenous bankers, and chit funds. The organized money market comprises treasury bills, commercial paper, certificates of deposit, the call money market, and the commercial bill market. The capital market provides long-term finance and consists of the industrial securities market, government securities market, and long-term loans market.
The document discusses various types of financial instruments. It defines a financial instrument as any contract that gives rise to a financial asset for one entity and a financial liability or equity instrument for another entity according to IAS standards. The document then proceeds to classify and describe different types of financial instruments including monetary instruments, investment instruments such as debt securities, equity securities, mutual funds, and derivatives, as well as non-investment instruments such as foreign exchange and cryptocurrency. Key details on each instrument such as features, examples, and liquidity are provided.
Investment Management - Financial Market and InstitutionsDr. John V. Padua
This document provides an overview of financial markets and institutions. It defines key terms like financial system, markets, institutions and regulations. It describes the main components and functions of the financial system including borrowing/lending, price determination and risk sharing. It also outlines the major types of financial institutions like commercial banks, investment funds, insurance companies and their risk-reducing roles. Finally, it discusses reasons for financial regulation including increasing information transparency and ensuring system stability.
Money market instruments are very liquid and safe but offer lower returns than other securities. Common money market instruments in Bangladesh include treasury bills, commercial paper, certificates of deposit, and bankers' acceptances. Treasury bills are government securities issued at a discount that mature at par. Commercial paper is short-term debt issued by large companies. Certificates of deposit are bank-issued time deposits. Bankers' acceptances involve bills of exchange endorsed by banks to facilitate international trade.
Presenting this set of slides with name - Financial Instruments Powerpoint Presentation Slides. Our topic specific Financial Instruments Powerpoint Presentation Slides presentation deck contains thirtyfour slides to formulate the topic with a sound understanding. This PPT deck is what you can bank upon. With diverse and professional slides at your side, worry the least for a powerpack presentation. A range of editable and ready to use slides with all sorts of relevant charts and graphs, overviews, topics subtopics templates, and analysis templates makes it all the more worth. This deck displays creative and professional looking slides of all sorts. Whether you are a member of an assigned team or a designated official on the look out for impacting slides, it caters to every professional field.
This chapter discusses the financial markets and interest rates. It covers topics such as the objectives of financial markets, which are to allocate savings in the economy to those demanding funds. It also discusses the key components of the US financial market system, including the money market, capital market, primary and secondary markets. The chapter outlines various theories regarding interest rates and the term structure of interest rates. It examines regulations governing financial markets and the roles of investment bankers, securities exchanges, and other financial institutions and mechanisms.
This document discusses monetary policy and how the Federal Reserve uses it to manage the economy. It explains that the Fed uses open market operations, buying and selling U.S. treasury bonds, to increase or decrease the money supply. When the Fed buys bonds it injects money into the economy, lowering interest rates to stimulate investment and growth. When it sells bonds it removes money, raising rates but also slowing investment to prevent overheating. The goal is to keep rates and the economy stable over time using this tool to counter shifts in money demand from the private sector.
1. Financial markets exist to connect lenders and borrowers, allowing companies and governments to raise capital from investors.
2. The money market provides short-term funding of up to one year, while the capital market supplies long-term funding greater than one year through stock and bond markets.
3. The capital markets are closely watched as indicators of economic conditions. Companies and governments issue stocks and bonds to raise funds for capital projects, acquisitions, or expanding business lines. Investors provide the funds by purchasing these securities.
This document discusses financial markets and institutions. It begins by outlining the capital allocation process and defining direct and indirect financing. It then discusses various segments of financial markets, including money markets and capital markets. The document outlines what financial markets are, why they are important to study, and their key functions. It also defines different types of financial markets and instruments traded within them, such as money market securities, capital market securities, bonds, mortgages, and derivatives. Finally, it discusses financial institutions, defining them and their role in facilitating indirect finance between savers and borrowers.
The document discusses the corporate debt market in India. It provides an overview of the primary and secondary markets for corporate bonds. It notes that the primary market is dominated by private placements while the secondary market sees trading on exchanges. The size of the corporate bond market has been increasing in recent years however it remains smaller than markets in other countries. Further development of the corporate debt market could help companies access longer term funding and promote economic growth.
Saminar on Financial Market Money Market By Sanjay SindagiSanjay Sindagi
The document defines and describes financial markets. It states that a financial market facilitates the exchange of financial instruments between buyers and sellers. It discusses the key components of financial markets, including the money market, primary market, secondary market, capital market, debt market, and equity market. The document also outlines various money market instruments such as treasury bills, commercial papers, certificates of deposit, and repurchase agreements. It notes that financial markets play an important role in economic development by providing funding for trade, industries, and capital formation.
This document provides an overview and comparison of the money markets in South Africa and India. It defines what money markets are and discusses the objectives, participants, instruments, and factors that influence money markets. Regarding South Africa specifically, it describes the institutions, instruments traded, trading systems, and regulation of the South African money market. For India, it notes the maturity periods, regulations, and types of instruments in the Indian money market. In comparing the two markets, it finds they have similar maturity periods, regulations, permitted instruments, and moved from paper-based to computerized trading.
Financial instruments are financial contracts between institutional units that include a range of financial assets and liabilities. Some key types of financial instruments are deposits, special drawing rights (SDRs) issued by the IMF, borrowings, loans, shares and other equity, debentures or bonds, other accounts receivable and payable, financial derivatives like options and swaps, letters of guarantee, letters of credit, and financial commitments. Derivatives allow parties to exchange risks and can include options, forwards/futures, and swaps. Loans are evidenced by non-negotiable documents and can be short, medium, or long term. Shares represent ownership rights in enterprises and equity, while debentures or bonds are a form of
The document provides an introduction to the international financial system, outlining how it facilitates the design, sale, and exchange of financial contracts. It discusses how individuals and firms obtain financial resources directly through markets or indirectly through financial institutions. It then surveys the major components of the financial system, including financial instruments, markets, and institutions. Financial instruments such as stocks, bonds, and loans are described in terms of their basic characteristics and uses. The roles and structures of financial markets and institutions are also outlined.
The document discusses the members of a group project on financial markets at IBS Mumbai. It then provides information on various topics related to financial markets including definitions of financial markets and money markets, functions of financial markets, classifications of markets, components of money markets like call money market, treasury bill market, commercial paper and certificates of deposits. It also discusses primary and secondary markets, corporate debt market, forex market and money market intermediaries like Discount and Finance House of India.
This document presents information about money market instruments. It begins with an introduction defining the money market as a financial market for short-term, highly liquid instruments. It then lists some key characteristics of money market instruments. The document proceeds to describe several types of popular money market instruments: Treasury bills, commercial paper, repurchase agreements, and banker's acceptances. It provides details on how Treasury bills are traded and the typical maturities of commercial paper, repurchase agreements, and banker's acceptances. The document concludes with a definition of the money market as a short-term market where liquidity and borrowing/lending occurs frequently, requiring constant awareness of changes.
The document provides an overview of money markets, including key definitions and concepts. Money markets are a segment of the financial market where short-term, highly liquid financial instruments are traded. They allow participants to borrow and lend for short periods ranging from a few days to under a year. Common money market instruments include treasury bills, commercial paper, certificates of deposit, and banker's acceptances, which are all very short-term, safe investments. Money markets serve important functions like financing trade and industry while also providing investment opportunities.
This document discusses impulse, momentum, and collisions. It covers the law of conservation of momentum, elastic and inelastic collisions, collisions in 2D and 3D, center of mass, and practical examples. The topics will be applied to understanding collisions when hitting balls in sports as well as analyzing object collisions. A quiz will conclude the material.
Government securities (G-Secs) are debt instruments issued by the Indian government to fund its fiscal deficit. There are two main types: treasury bills for short-term borrowing of less than 1 year, and government bonds or dated securities for long-term borrowing of 1 year or more. G-Secs are issued via auction on the NDS platform and traded on a yield basis. Major players are banks, primary dealers, and institutional investors like insurance companies. The Clearing Corporation of India acts as the central counterparty for all G-Sec transactions.
Qarant Invest was established in August 2011. It has 7 staff members, 3 of whom are CFA candidates. It has a brokerage license and offers brokerage services on foreign financial markets. It signed memorandums with the American Alumni Association and Qafqaz University. It launched offline brokerage services and will launch its Qarant FX online trading platform in January 2012.
Securities can be classified as either debt securities, such as bonds, or equity securities, such as stocks. Debt securities refer to financial instruments that represent money borrowed and include government bonds, corporate bonds, certificates of deposit, and collateralized debt obligations. Equity securities provide dividend income but can fluctuate in value with economic changes and the company's fortunes. Derivatives derive their value from an underlying asset, index, or interest rate, and are used for hedging risks or speculating; common derivatives include forwards, futures, options, and swaps.
Financial institutions and markets notes as per BPUT syllabus for MBA 2nd sem...Venkat Kothakota
The document provides information on the Indian financial market and its various components. It discusses the money market and capital market as the two main organized financial markets in India. The money market is further divided into unorganized and organized segments. The unorganized segment includes money lenders, indigenous bankers, and chit funds. The organized money market comprises treasury bills, commercial paper, certificates of deposit, the call money market, and the commercial bill market. The capital market provides long-term finance and consists of the industrial securities market, government securities market, and long-term loans market.
The document discusses various types of financial instruments. It defines a financial instrument as any contract that gives rise to a financial asset for one entity and a financial liability or equity instrument for another entity according to IAS standards. The document then proceeds to classify and describe different types of financial instruments including monetary instruments, investment instruments such as debt securities, equity securities, mutual funds, and derivatives, as well as non-investment instruments such as foreign exchange and cryptocurrency. Key details on each instrument such as features, examples, and liquidity are provided.
Investment Management - Financial Market and InstitutionsDr. John V. Padua
This document provides an overview of financial markets and institutions. It defines key terms like financial system, markets, institutions and regulations. It describes the main components and functions of the financial system including borrowing/lending, price determination and risk sharing. It also outlines the major types of financial institutions like commercial banks, investment funds, insurance companies and their risk-reducing roles. Finally, it discusses reasons for financial regulation including increasing information transparency and ensuring system stability.
Money market instruments are very liquid and safe but offer lower returns than other securities. Common money market instruments in Bangladesh include treasury bills, commercial paper, certificates of deposit, and bankers' acceptances. Treasury bills are government securities issued at a discount that mature at par. Commercial paper is short-term debt issued by large companies. Certificates of deposit are bank-issued time deposits. Bankers' acceptances involve bills of exchange endorsed by banks to facilitate international trade.
Presenting this set of slides with name - Financial Instruments Powerpoint Presentation Slides. Our topic specific Financial Instruments Powerpoint Presentation Slides presentation deck contains thirtyfour slides to formulate the topic with a sound understanding. This PPT deck is what you can bank upon. With diverse and professional slides at your side, worry the least for a powerpack presentation. A range of editable and ready to use slides with all sorts of relevant charts and graphs, overviews, topics subtopics templates, and analysis templates makes it all the more worth. This deck displays creative and professional looking slides of all sorts. Whether you are a member of an assigned team or a designated official on the look out for impacting slides, it caters to every professional field.
This chapter discusses the financial markets and interest rates. It covers topics such as the objectives of financial markets, which are to allocate savings in the economy to those demanding funds. It also discusses the key components of the US financial market system, including the money market, capital market, primary and secondary markets. The chapter outlines various theories regarding interest rates and the term structure of interest rates. It examines regulations governing financial markets and the roles of investment bankers, securities exchanges, and other financial institutions and mechanisms.
This document discusses monetary policy and how the Federal Reserve uses it to manage the economy. It explains that the Fed uses open market operations, buying and selling U.S. treasury bonds, to increase or decrease the money supply. When the Fed buys bonds it injects money into the economy, lowering interest rates to stimulate investment and growth. When it sells bonds it removes money, raising rates but also slowing investment to prevent overheating. The goal is to keep rates and the economy stable over time using this tool to counter shifts in money demand from the private sector.
1. Financial markets exist to connect lenders and borrowers, allowing companies and governments to raise capital from investors.
2. The money market provides short-term funding of up to one year, while the capital market supplies long-term funding greater than one year through stock and bond markets.
3. The capital markets are closely watched as indicators of economic conditions. Companies and governments issue stocks and bonds to raise funds for capital projects, acquisitions, or expanding business lines. Investors provide the funds by purchasing these securities.
This document discusses financial markets and institutions. It begins by outlining the capital allocation process and defining direct and indirect financing. It then discusses various segments of financial markets, including money markets and capital markets. The document outlines what financial markets are, why they are important to study, and their key functions. It also defines different types of financial markets and instruments traded within them, such as money market securities, capital market securities, bonds, mortgages, and derivatives. Finally, it discusses financial institutions, defining them and their role in facilitating indirect finance between savers and borrowers.
The document discusses the corporate debt market in India. It provides an overview of the primary and secondary markets for corporate bonds. It notes that the primary market is dominated by private placements while the secondary market sees trading on exchanges. The size of the corporate bond market has been increasing in recent years however it remains smaller than markets in other countries. Further development of the corporate debt market could help companies access longer term funding and promote economic growth.
Saminar on Financial Market Money Market By Sanjay SindagiSanjay Sindagi
The document defines and describes financial markets. It states that a financial market facilitates the exchange of financial instruments between buyers and sellers. It discusses the key components of financial markets, including the money market, primary market, secondary market, capital market, debt market, and equity market. The document also outlines various money market instruments such as treasury bills, commercial papers, certificates of deposit, and repurchase agreements. It notes that financial markets play an important role in economic development by providing funding for trade, industries, and capital formation.
This document provides an overview and comparison of the money markets in South Africa and India. It defines what money markets are and discusses the objectives, participants, instruments, and factors that influence money markets. Regarding South Africa specifically, it describes the institutions, instruments traded, trading systems, and regulation of the South African money market. For India, it notes the maturity periods, regulations, and types of instruments in the Indian money market. In comparing the two markets, it finds they have similar maturity periods, regulations, permitted instruments, and moved from paper-based to computerized trading.
Financial instruments are financial contracts between institutional units that include a range of financial assets and liabilities. Some key types of financial instruments are deposits, special drawing rights (SDRs) issued by the IMF, borrowings, loans, shares and other equity, debentures or bonds, other accounts receivable and payable, financial derivatives like options and swaps, letters of guarantee, letters of credit, and financial commitments. Derivatives allow parties to exchange risks and can include options, forwards/futures, and swaps. Loans are evidenced by non-negotiable documents and can be short, medium, or long term. Shares represent ownership rights in enterprises and equity, while debentures or bonds are a form of
The document provides an introduction to the international financial system, outlining how it facilitates the design, sale, and exchange of financial contracts. It discusses how individuals and firms obtain financial resources directly through markets or indirectly through financial institutions. It then surveys the major components of the financial system, including financial instruments, markets, and institutions. Financial instruments such as stocks, bonds, and loans are described in terms of their basic characteristics and uses. The roles and structures of financial markets and institutions are also outlined.
The document discusses the members of a group project on financial markets at IBS Mumbai. It then provides information on various topics related to financial markets including definitions of financial markets and money markets, functions of financial markets, classifications of markets, components of money markets like call money market, treasury bill market, commercial paper and certificates of deposits. It also discusses primary and secondary markets, corporate debt market, forex market and money market intermediaries like Discount and Finance House of India.
This document presents information about money market instruments. It begins with an introduction defining the money market as a financial market for short-term, highly liquid instruments. It then lists some key characteristics of money market instruments. The document proceeds to describe several types of popular money market instruments: Treasury bills, commercial paper, repurchase agreements, and banker's acceptances. It provides details on how Treasury bills are traded and the typical maturities of commercial paper, repurchase agreements, and banker's acceptances. The document concludes with a definition of the money market as a short-term market where liquidity and borrowing/lending occurs frequently, requiring constant awareness of changes.
The document provides an overview of money markets, including key definitions and concepts. Money markets are a segment of the financial market where short-term, highly liquid financial instruments are traded. They allow participants to borrow and lend for short periods ranging from a few days to under a year. Common money market instruments include treasury bills, commercial paper, certificates of deposit, and banker's acceptances, which are all very short-term, safe investments. Money markets serve important functions like financing trade and industry while also providing investment opportunities.
This document discusses impulse, momentum, and collisions. It covers the law of conservation of momentum, elastic and inelastic collisions, collisions in 2D and 3D, center of mass, and practical examples. The topics will be applied to understanding collisions when hitting balls in sports as well as analyzing object collisions. A quiz will conclude the material.
This document provides assignments and discussion questions for the FINC 610 course. It includes 8 weekly assignments and discussion questions covering topics like bonds, interest rates, banking, and financial markets. Students are instructed to write responses of 250-500 words to the questions in APA format and cite at least two credible sources. The document provides links to answers written by tutors for each assignment for students to get help with the coursework.
The document discusses several types of congenital deformities of the muscular skeletal system. It describes congenital deformities as physical defects present at birth that may involve one or multiple body parts. Common types discussed include clubfoot, limb deficiencies, polydactyly, and spina bifida. For each type, the document outlines causes, diagnostic methods, treatment approaches, and prognosis.
1) Impulse is equal to the change in momentum, and momentum is defined as mass times velocity.
2) During collisions between objects, momentum is conserved if there are no external forces. The total momentum before the collision equals the total momentum after.
3) Collisions can be elastic (kinetic energy is conserved), inelastic (kinetic energy is not conserved), or explosions where one object breaks into two after the collision.
The document discusses linear momentum, impulse, and the conservation of momentum during collisions. It defines linear momentum as the product of an object's mass and velocity. It also states that the time rate of change of linear momentum is equal to the net force acting on an object. Impulse is defined as the force acting on an object times the change in momentum. The document outlines elastic collisions, in which both momentum and kinetic energy are conserved, and inelastic collisions, where kinetic energy is not conserved though momentum remains conserved. It provides examples of calculating momentum and velocities before and after both perfectly inelastic and elastic collisions.
1 Role of Financial Markets and InstitutionsCHAPTER OBJECTIVES.docxlorainedeserre
1 Role of Financial Markets and Institutions
CHAPTER OBJECTIVES
The specific objectives of this chapter are to:
· ▪ describe the types of financial markets that facilitate the flow of funds,
· ▪ describe the types of securities traded within financial markets,
· ▪ describe the role of financial institutions within financial markets, and
· ▪ explain how financial institutions were exposed to the credit crisis.
A financial market is a market in which financial assets (securities) such as stocks and bonds can be purchased or sold. Funds are transferred in financial markets when one party purchases financial assets previously held by another party. Financial markets facilitate the flow of funds and thereby allow financing and investing by households, firms, and government agencies. This chapter provides some background on financial markets and on the financial institutions that participate in them.
1-1 ROLE OF FINANCIAL MARKETS
Financial markets transfer funds from those who have excess funds to those who need funds. They enable college students to obtain student loans, families to obtain mortgages, businesses to finance their growth, and governments to finance many of their expenditures. Many households and businesses with excess funds are willing to supply funds to financial markets because they earn a return on their investment. If funds were not supplied, the financial markets would not be able to transfer funds to those who need them.
Those participants who receive more money than they spend are referred to as surplus units (or investors). They provide their net savings to the financial markets. Those participants who spend more money than they receive are referred to as deficit units. They access funds from financial markets so that they can spend more money than they receive. Many individuals provide funds to financial markets in some periods and access funds in other periods.
EXAMPLE
College students are typically deficit units, as they often borrow from financial markets to support their education. After they obtain their degree, they earn more income than they spend and thus become surplus units by investing their excess funds. A few years later, they may become deficit units again by purchasing a home. At this stage, they may provide funds to and access funds from financial markets simultaneously. That is, they may periodically deposit savings in a financial institution while also borrowing a large amount of money from a financial institution to buy a home.
Many deficit units such as firms and government agencies access funds from financial markets by issuing securities, which represent a claim on the issuer. Debt securities represent debt (also called credit, or borrowed funds) incurred by the issuer. Deficit units that issue the debt securities are borrowers. The surplus units that purchase debt securities are creditors, and they receive interest on a periodic basis (such as every six months). Debt securities have a maturity da ...
Session 02 - Role of Financial Markets and Institutions.pptxExperimentalLab
1. Financial markets facilitate the flow of funds between surplus units and deficit units by transferring funds from those with excess funds to those who need funds. They allow corporations and governments to raise funds by issuing securities.
2. Financial institutions play a key role in financial markets by channeling funds from surplus units like households and corporations to deficit units in need of financing. Depository institutions like banks accept deposits and provide loans while non-depository institutions raise funds through other means like issuing securities.
3. Both depository and non-depository financial institutions help address imperfections in financial markets by evaluating borrowers, repackaging funds, and providing liquidity. They allow for efficient allocation of funds between surplus and deficit units
Money Market
The key differences are:
1. Nature of Instruments: Capital Market deals with long-term securities such as stocks and bonds, while the Money Market deals with short-term debt instruments like Treasury bills, commercial paper, and certificates of deposit.
2. Risk Involved: Capital Market investments typically carry higher risks and returns compared to the Money Market, which involves lower-risk, short-term investments.
3. Maturity Period: Capital Market investments have longer maturity periods, often several years, while Money Market instruments have very short maturity period ranging from a few days to under a year.
The document provides an overview of the financial system and its key components. It discusses how financial markets and institutions help channel funds from savers to borrowers, allowing for investment and economic growth. It then covers the major types of financial markets and instruments, including debt vs equity markets, primary vs secondary markets, money markets, capital markets, and derivatives. It also discusses the internationalization of financial markets through foreign bonds, Eurobonds, and Eurocurrencies.
The document provides an overview of money markets, including characteristics, participants, purposes, risks, and securities. Money markets are used by participants to borrow and lend in the short term, from days to under a year. They facilitate the transfer of short-term funds between entities with excess and deficient funds. Key money market securities include treasury bills, commercial paper, certificates of deposit, and repurchase agreements.
The document defines finance and financial systems. It discusses the functions of money, different measures of money supply, and the roles of money lending, capital formation, and investment in the financial system. It also describes the evolution of financial systems from more rudimentary to indirect systems, the key components and markets within financial systems, and the functions of financial intermediaries, markets, and instruments.
The financial system in India has seen significant changes since independence, facilitating faster economic development. The system links savers and investors through various financial institutions and markets. It provides necessary financial inputs for production through intermediation of funds. The major components of the financial system are banking institutions, non-banking financial institutions, financial markets, and financial instruments. Financial markets include money markets for short-term funds and capital markets for long-term funds. Money markets deal in short-term debt instruments like treasury bills, commercial paper, certificates of deposit, and promissory notes. Capital markets facilitate resource mobilization through primary and secondary markets.
The document provides an overview of financial markets, including:
1) It defines financial markets and discusses their key features like liquidity, efficiency, and risk management.
2) It explains the importance of financial markets in facilitating capital formation, economic growth, and price discovery.
3) It describes the classification of financial markets based on maturity, seasoning, timing and delivery, and organizational structure. This includes distinctions between money markets and capital markets.
The document discusses money and capital markets. It defines money markets as trading highly liquid short-term products with safety and low returns. Capital markets refer to venues where funds are exchanged between those seeking capital and suppliers of capital like businesses and investors. Capital markets are divided into primary markets where new stocks/bonds are issued, and secondary markets where previously issued securities are traded. The main components of capital markets are the equity market for stocks, debt market for bonds, and derivatives market for financial contracts deriving value from underlying assets. Common capital market instruments include equities like shares, debt securities like bonds and debentures, derivatives like futures and options, and exchange-traded funds.
The document discusses the need for development of the Indian debt market. It notes that debt markets have historically been neglected compared to equity markets in India. It provides historical context around perceptions of debt stemming from slavery and independence struggles. Well-developed debt markets are needed to meet real sector financing needs, diversify investor risks, reduce currency mismatches, and aid monetary policy transmission. Past issues that hindered development included lack of price discovery, hedging options, and market fragmentation. Recent reforms have addressed many of these problems to help build a more efficient and liquid debt market.
The document provides information on various types of investments and financial markets. It discusses initial public offerings (IPOs) as well as the roles of intermediaries in the primary market. Specifically, it notes that an IPO allows a company to raise funds by selling shares to the public for the first time. A lead manager helps guide companies through the IPO process by conducting due diligence, drafting offering documents, and coordinating post-issue activities.
Financial markets allow people and entities to trade securities, commodities, and other assets. They serve several functions including raising capital, transferring risk, facilitating price discovery and global transactions, and transferring liquidity. There are several types of financial markets including capital markets for stocks and bonds, commodity markets, money markets for short-term debt, derivatives markets for managing risk, futures markets for forward contracts, insurance markets, and foreign exchange markets. Within capital markets, primary markets involve new security issuances while secondary markets allow trading of existing securities. Money markets specifically involve short-term borrowing, lending, buying and selling of assets with original maturities of one year or less. Common money market instruments include certificates of deposit, commercial paper, and treas
The document provides an overview of the money market and key players. It discusses how governments, through treasury bills, and security dealers, through repurchase agreements, are major borrowers in the money market. It also outlines the roles of central banks, commercial banks, corporations and other financial institutions as important lenders and borrowers in the money market.
This document summarizes key concepts from a lecture on the financial system. It discusses the structure and components of financial markets, including money markets, capital markets, primary and secondary markets, and different types of financial instruments. It also explains the role of financial intermediaries in facilitating indirect finance and reducing transaction costs. Finally, it covers problems that can arise in financial transactions due to asymmetric information, such as adverse selection and moral hazard.
The document discusses financial markets and money markets. It defines a financial market as a mechanism for buying and selling financial securities and commodities. It notes that money markets deal in short-term lending of less than 1 year for instruments like treasury bills, commercial paper, certificates of deposits, repurchase agreements, and bankers acceptances. Capital markets are for longer term borrowing and lending through instruments like stocks, bonds, debentures, and preference shares.
The document discusses various aspects of financial markets. It defines a financial market as a mechanism that allows people to buy and sell financial securities and commodities. It then describes different types of financial markets including the money market, capital market, primary market, and secondary market. The document focuses on instruments and importance of the money market, discussing treasury bills, commercial paper, certificates of deposits, repurchase agreements, and banker's acceptances. It also covers capital markets, their importance, and instruments like equity shares, preference shares, bonds, and debentures.
The document discusses various aspects of financial markets, including money markets and capital markets. It defines a financial market as a mechanism that allows people to buy and sell financial securities and commodities. Money markets deal in short-term lending of less than 1 year, for safe and liquid assets. Capital markets facilitate long-term borrowing and lending for investments. Some common money market instruments discussed are treasury bills, commercial paper, certificates of deposits, repurchase agreements, and banker's acceptances. Capital market instruments include equity shares, preference shares, bonds, and debentures.
Financial markets allow for the exchange of funds between those who have savings (surplus units) and those who need funds for investment in real assets (deficit units). They do this through financial instruments that represent claims against issuers. There are two main types of financial markets - the money market for short-term instruments and the capital market for long-term debt and equity. Within each market, primary markets facilitate new issues while secondary markets allow for the exchange of existing securities. Financial intermediaries such as banks, insurance companies, and pension funds facilitate indirect finance by collecting funds through various financial claims and allocating them through purchases of direct claims.
Money market pdf that will help you understand further its definition, importance, classification, structure and examples. There are a lot of examples here and it is for everyone that needs to know about money market.
This slide is special for master students (MIBS & MIFB) in UUM. Also useful for readers who are interested in the topic of contemporary Islamic banking.
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How to Add Chatter in the odoo 17 ERP ModuleCeline George
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How to Fix the Import Error in the Odoo 17Celine George
An import error occurs when a program fails to import a module or library, disrupting its execution. In languages like Python, this issue arises when the specified module cannot be found or accessed, hindering the program's functionality. Resolving import errors is crucial for maintaining smooth software operation and uninterrupted development processes.
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This presentation includes basic of PCOS their pathology and treatment and also Ayurveda correlation of PCOS and Ayurvedic line of treatment mentioned in classics.
it describes the bony anatomy including the femoral head , acetabulum, labrum . also discusses the capsule , ligaments . muscle that act on the hip joint and the range of motion are outlined. factors affecting hip joint stability and weight transmission through the joint are summarized.
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1. Financial market is a market in which financial assets such as Market Efficiency: Because securities have market determined to invest in long term and short term assets. The quantity of
stocks and bonds can be purchased or sold. Funds are prices, their favorable or unfavorable characteristics as funds demended by business depends on the number
transferred in financial markets when one party purchases perceived by the market are reflected in their prices. When business projects to be implemented. Business evaluates a
financial assets previously held by another party. Financial security prices fully reflect all available information, the markets project by comparing the present value of its cash flows to its
market facilitates the flow of funds and thereby allows financing for these securities are said to be efficient. When markets are initial investment. Projects with a positive net present value
and investing by households, firms and govt agencies. Types of insufficient, investors can use available information ignored by are accepted because the present value of their benefits
Financial Markets: Each financial market is created to satisfy the market to earn abnormally high returns on their investments. outweighs the costs. The required return to implement a
particular preferences of market participants. There are many Even if markets are efficient this does not imply that individual or given project will be lower if interest rates are lower because
different types of financial markets and each market can be institutional investors should ignore the various investment the cost of borrowing funds to support the project will be
distinguished by the maturity structure and trading structure of its instruments are available. Investors differ with respect to the risk lower. Government Demand for Loanable Funds:
securities. Money Market: The financial markets that facilitate they are willing to incur the desired liquidity of securities and Whenever a government’s planned expenditures can not be
the flow of short term funds are known as money market, the their tax status, making some types of securities more desirable completely covered by its incoming revenues from taxes and
duration of the loan or debt is less than one year. Money market to some investors than to others. Some securities that are not as other sources, it demands loanable funds. Municipal
loan is used for daily activities of the institution and can create safe and liquid as desired may still be considered if the potential governments issue municipal bonds to obtain funds while the
deposit. Treasury bill, bill of exchange, commercial papers, return is sufficiently high. Investors normally attempt to balance federal government and its agencies issue treasury securities
bankers’ acceptance etc are used as the documents of loan. the objective of high return with their particular preference for and federal agency securities. These securities represent
Money market acts as a link between the investors and debtors. low risk and adequate liquidity. Surplus Unit: The main government debt. Federal government expenditure and tax
Capital Market: The financial markets that facilitate the flow of participants in financial markets can be classified as households, policies are generally thought to be independent of interest
long term funds are known as capital market. Duration of the businesses, and government agencies. Those participants who rates. Thus, the federal government demand for funds is said
loan or debt is more than one year. Capital market loan is used provide funds to the financial markets are called surplus units. to be interest inelastic or insensitive to interest rates.
for setting up the industry, purchasing heavy machinery and Deficit Units: Households are the main type of surplus unit. Foreign Demand for Loanable Funds: The demand for
other fixed assets. It can not create deposit. Share, debenture, Participants who use financial to obtain funds are called deficit loanable funds in a given market also includes foreign
bond, mortgage, stock etc is used as document of loan. Capital units. Many deficit units issue securities to surplus units in order demand by foreign governments or corporations. For
market acts as a middleman between the investors and to obtain funds. A security is a certificate that represents claim example, the British government may obtain financing by
entrepreneur. Primary market: Primary markets facilitate the on the issuer. issuing British Treasury securities to U.S. investors,
issuance of new securities. Its transaction provides funds to the Financial markets: Financial markets transfer funds from those representing a British demand for U.S. funds. Because
initial issuer of securities. The issuance of new corporate stock who have excess funds to those who need funds. They enable foreign financial transactions are becoming so common, they
or new treasury securities is a primary market transaction. college students to obtain student loans, families to obtain can have a significant impact on the demand for loanable
Secondary Market: Secondary Markets facilitate the trading of mortgages, businesses to finance their growth and govt to funds in any given country. A foreign country’s demand for
existing securities. The sale of existing corporate stock or finance their expenditures. Without financial markets many U.S. funds is influenced by the differential between its
treasury security holdings by any business or individual is a students could not go to college, many families could not interest rates and U.S. rates. Aggregate Demand for
secondary market transaction. Securities traded in Financial purchase home, corporations could not grow, and the Loanable Funds: The aggregate demand for Loanable
markets: Securities can be classified as Money Market government could not provide as many public services. funds is the sum of the quantities demanded by the separate
Securities, Capital market Securities and Derivative securities. Households and businesses that supply funds to the financial sectors at any given interest rates. Because most of these
Each type of security tends to have specific return and risk markets earn a return on their return is necessary to ensure that sectors are likely to demand a larger quantity of funds at
characteristics. Money Market Securities are debt securities funds are supplied to the financial markets. If funds were not lower interest rates, the aggregate demand for loanable
that have a maturity of one year or less. They generally have a supplied, the financial markets would not be able to transfer funds is inversely related to interest rates at any point in
relatively high degree of liquidity. It tends to have a low expected funds to those who need them. Perfect Security Market: If time. If the demand schedule of any sector changes, the
return but also a low degree of risk. Capital market Securities: financial markets were perfect, all information about any aggregate demand schedule will be affected as well. Supply
Securities with a maturity of more than one year are called securities for sale in primary and secondary markets would be of Loanable Funds: The term “Supply of Loanable Funds” is
capital market securities. Three common types of capital market continuously and freely available to investors. All information commonly used to refer to funds provided to financial
securities are bonds, mortgages and stocks. Bonds and identifying investors interested in purchasing securities as well markets by severs. The household sector is the largest
Mortgages: Bonds are long term debt obligations issued by as investors planning to sell securities would be freely available. supplier, but loanable funds are also supplied by some govt
corporations and government agencies to support their Furthermore, all securities for sale could be broken down into units that temporarily generate more tax revenues than they
operations. Bonds provide a return to investors in the form of any size desired by investors and security transaction costs spend or by some businesses whose cash inflows exceed
interest income every six months. Mortgages are long term debt would be nonexistent. Under this condition, financial outflows. Equilibrium Interest Rate: There are several
obligations created to finance the purchase of real estate. Since intermediaries would not be necessary. Imperfect market different interest rates because some borrowers pay a higher
bonds and mortgages represent debt they specify the amount Securities: Because markets are Imperfect, Securities buyers rate than others. At this point however, the focus is on the
and timing of interest and principal payments to investors who and sellers do not have full access to information and can not forces that cause the general level of interest rates to
purchase them. At maturity investors holding the debt securities always break down securities to the precise size they desire. change, as interest rates across borrowers tend to change in
are paid to the principal. Some debt securities are risky because Financial institutions are needed to resolve the problems caused the same direction. The determination of an equilibrium
the issuer could default on its obligation to repay the debt. by market imperfections. They receive requests from surplus interest rate is presented first from an algebraic perspective
Stocks are certificates representing partial ownership in the and deficit units on what securities are to be purchased or sold and then from a graphic perspective. Algebraic
corporations that issued them. They are classified as capital and they use this information to match up buyers and sellers of Presentation: The equilibrium interest rate is the rate that
market securities because they have no maturity and therefore securities. Because the amount of a specific security to be sold equates the aggregate demand for funds with the aggregate
serve as a long term source of funds . does not always equal the amount desired by investors, financial supply of loanable funds. The algebraic demand for Funds
Derivative Securities are financial contracts whose values are institutions sometimes unbundled the securities by spreading (DA) can be written as,
derived from the values underlying assets. Many derivative them across several investors until the entire amount is sold. DA = D h + D b + D g + D m + D f
securities enable investors to engage in speculation and risk Without financial institutions, the information and transaction Where, Dh = Household demand for loanable funds.
management. Speculation derivative securities allow an investor costs of financial market transactions would be excessive. The Db = Business demand for loanable funds
to speculate on movements in the underlying assets without Securities Act 1933: The securities act of 1933 was intended to Dg = Federal government demand for loanable funds
having to purchase those assets. Some derivative securities ensure complete disclosure of relevant financial information on Dm= Municipal government demand for loanable funds
allow investors to benefit from an increase in the value of debt publicity offered securities and to prevent fraudulent practices in Df = Foreign demand for loanable funds
securities, while others allow investors to benefit from a selling these securities. The Securities Act of 1934: The Graphic Presentation: By combining the aggregate demand
decrease in the value of debt securities Valuation of securities securities act of 1934 extended the disclosure requirements to and aggregate supply schedules for loanable funds, it is
in Finance Markets: Each type of security generates a unique secondary market issues. possible to compare the total amount of funds that would be
stream of expected cash flows to investors. The valuation of a It also declared illegal a variety of deceptive practices, such as demanded to the total amount of funds that would be
security is measured as the present value of its expected cash misleading financial statements and trading strategies designed supplied at any particular interest rate. Impact of Economic
flows, discounted at a rate that reflects the uncertainty. Market to manipulate the market price. It established the Securities and growth on Interest Rates: As a result of more optimistic
Pricing of Securities: Securities are priced in the market Exchange Commission to oversee the security market and the economic projections most businesses increase their
according to how they are valued by market participants.Impact SEC has implemented additional laws over time. Securities laws planned expenditures for expansion, which translates into
of Information on Valuations: Although all investors rely on do not prevent investors from making poor investment decision additional borrowing. The aggregate demand schedule will
valuation to make investment decisions, different investors may but only attempt to ensure full disclosure of information and thus shift outward. The supply of loanable funds schedule may
derive different valuations of security based on the existing set of protect against fraud. A security’s market price is driven by new also shift, but it is more difficult to know how it will shift. It is
information. That is investors interpret and use information in information that affects its valuation. When information is possible that the increased expansion by businesses will
different ways. Some investors may rely mostly on economic or disclosed to only a small set of investors, those investors have lead to more income for construction crews and others who
industry information to value a security, while others may rely on major advantages over other investors. Loan able Funds service the expansion. In this case, the quantity of savings,
published opinions about the firms’ management. Each security Theory: The loan able funds theory, commonly used to explain and therefore of loanable funds supplied at any possible
has an equilibrium market price at which the demand for that interest rate movements, suggests that the market interest rate interest rate, could increase, causing an outward shift in the
security is equal to the supply of that security for sale. Impact is determined by the factors that control the supply of and supply schedule. Yet there is no assurance that the volume
valuation on Pricing: When investors receive new information demand for loanable funds. the theory is especially useful for of savings will actually increase. Overall, the expected
that clearly indicates likelihood of higher cash flows or less explaining movements in the general level of interest rates for a impact of the increased expansion by businesses is an
uncertainty, they revise all of their valuations of that security particular country. Further more it can be used along with other outward shift in the demand schedule and no obvious
upward. Consequently, the prevailing price is no longer in concepts to explain why interest rates among some debt change in the supply schedule. Fisher Effect: More than 50
demand for the security as undervalued at the price. The securities of a given country vary. Household demand for years ago, Irving Fisher proposed a theory of interest rate
demand for the security increases at that price and the supply of Loanable Funds: Households commonly demand loanable determination that is still widely used today. It does not
that security for sale decrease. Impact of the internet on the funds housing expenditures. They finance the purchases of contradict the loanable funds theory but simply offers an
valuation process: The internet has improved the valuation of automobiles and household items which result in installment additional explanation for interest rate movements. Fisher
securities in several ways. Prices of securities are quoted online debt. As the aggregate level of household income rises over proposed that nominal interest payments compensate savers
and can be obtained at any given moment by investors. The time, so does installment debt. The level of installment debt as a in two ways. First, they compensate for a savers reduced
actual sequence of transaction is provided for some securities. percentage of disposable income has been increasing since purchasing power. Second, they provide an additional
Much more information about the firms that issue securities is 1983. It is generally lower in recessionary periods. Business premium to savers for forgoing present consumption. Savers
available online, which allows securities to be priced more Demand for Loanable Funds: Business demand loanable are willing to forgo consumption only if they receive a
2. Above the anticipated rate of inflation, as shown the following Account and payments received from the treasury when the
equation, securities mature are deposited electronically into the account.
I = E(INF) + ig Estimating the yield: T-bills do not offer coupon payments but
Where, I = Nominal or quoted rate of interest are sold at a discount from par value. Their yield is influenced
E(INF) = Expected inflation rate by the difference between the selling price and the purchase
Ig = Real interest rate. price. If an investor purchases a newly issued T-bill and holds it
Nominal Interest Rate & Real interest rate: The relationship until maturity, the return is based on the difference between the
between interest rates and expected inflation often referred as par value and the purchase price. If the T-bill is sold prior to
the Fishers effect. The difference between the nominal interest maturity, the return is based on the difference between the price
rate and the expected inflation rate is the real return to a saver for which the bill was sold in the secondary market and the
after adjusting for the reduced purchasing power over the time of purchase price. The annualized yield from investing in a T-bill
period of concern. It is referred to as the real interest rate, (YT) can be determined as
because unlike the nominal rate of interest, it adjusts for the SP − PP 365
YT = X
expected rate of inflation. If the nominal interest rate was equal PP n
to the expected inflation rate, the real interest rate would be Where, SP= Selling Price
zero. Savings would accumulate interest at the same rate that PP= Purchase Price
prices were expected to increase, so that the purchasing power n = Holding Period
of savings would remain stable. The real interest rate over an Estimating the Treasury Bill Discount: Business periodicals
upcoming period can be forecasted by subtracting the expected frequently quote the T-bill discount along with the T-bill yield.
inflation rate over that period from the nominal interest rate The T-bill discount represents the present discount of the
quoted for that period. Because the expected inflation rate is purchase price from par value for newly issued T-bills and is
difficult to estimate, the real interest rate is difficult to forecast. computed as,
When the inflation rate is higher than anticipated, the real Par − PP 360
Discount = X
interest rate is relatively low. Par n
Crowding-out Effect: When the federal government enacts Commercial Paper: Commercial paper is a short term debt
fiscal’s policies that result in more expenditures than tax instrument issued only by well known, credit-worthy firms and is
revenue, the budget deficit is increased. A higher federal typically unsecured. It is normally issued to provide liquidity or
government deficit increases the quantity of loanable funds finance a firm’s investment in inventory and accounts receivable.
demanded at any prevailing interest rate causing an outward The issue of commercial paper is an alternative to short term
shift in the demand schedule. Assuming no offsetting increase in bank loans. Financial institutions such as finance companies and
the supply schedule, interest rates will rise. Given a certain bank holding companies are major users of commercial papers.
amount of loanable funds supplied to the market, excessive Ratings: Since commercial paper is used by corporations that
government demand for these funds tends to “crow out” the are susceptible to business failure, the commercial paper could
private sector may not be willing to pay whatever is necessary to possibly default. The risk of default is influenced by the issuer’s
borrow these funds, but the private sector may not. This impact financial condition and cash flow. Investors can attempt to
is known as the Crowding-out Effect. Forecasts of Interest assess the probability that commercial paper will default by
rates: Some analysts focus more on changes in demands of monitoring the issuer’s financial condition. The focus on the
fund and supply of funds than on estimating the aggregate level issuer’s ability to repay its debt over the short term because the
of demands of fund and supply of funds. This interest rate will payments will be completed within a short term period. The
change only if demands of fund and supply of funds change to ratings serves as an indicator of the potential risk of default.
create a temporary disequilibrium. If the government demands Negotiable Certificates of Deposit: NCD’s are certificates that
for fund is expected to increase substantially and no other are issued by large commercial banks and other depository
components are expected to change, demands of fund will institutions as a short term source of funds. The minimum
exceed the demand of supply, placing upward pressure on denomination is $1,00,000, although a $1 million denomination
interest rates. Thus, the forecast of future interest rates can be is more common. Nonfinancial corporations often purchase
derived without estimating every component comprising NCD’s. Although NCD denominations are typically too large for
demands of fund and supply of funds. Forecasts of interest rates individual investors, they are sometimes purchased by money
are wrong when forecasts of the components comprising market funds that have pooled individual investor’s fund. Thus
demands of fund and supply of funds are wrong. For example, if money market funds allow individuals to be indirect investors in
the government demand for loanable funds is overestimated NCDs, creating a more active NCD market. Maturities on NCDs
while all the components are properly estimated, demands of normally range from two to one year. A secondary market for
fund will be overestimated. Consequently, interest rates will NCDs exists, providing investors with some liquidity. However,
probably be lower than forecast. Money Market Securities: institutions prefer not to have their newly issued NCDs compete
Securities with maturities within one year are referred to as with their previously issued NCDs that are being resold in the
money market securities. They are issued by corporations and secondary market. An oversupply of NCDs for sale can force
government to obtain short-term funds. They are originally them to sell their newly issued NCDs at a lower price. Bankers
issued in the primary market through a telecommunications Acceptances: A banker’s acceptance indicates that a bank
network that informs investors that new securities are for sale. accepts responsibility for a future payment. Banker’s
Money market securities are commonly purchased by the acceptances are commonly used for international trade
corporations and government agencies that have funds available transactions. An exporter that is sending goods to an importer
for a short term period. Because money market securities have whose credit rating is not known will often prefer that a bank act
short term maturity and can typically be sold in the secondary as a guarantor. The bank therefore facilitates the transaction by
market, they provide liquidity to investors. Most firms and stamping ACCEPTED on a draft, which obligates payment at a
financial institutions maintain some holdings of money market specified point in time. In turn, the importer will pay the bank
securities for this reason. The more popular money market what is owed to the exporter along with a fee to the bank for
securities are: Treasury bills, Commercial Paper, Negotiable guaranteeing the payment. Exporters can hold bankers
certificates of deposit, Repurchase agreements, Federal funds, acceptance until the date at which payment is to be made, but
and bankers’ acceptance. Treasury uses the primary market they frequently sell the acceptance before then at a discount to
to obtain adequate funding: The treasury issues treasury bills obtain cash immediately. The investor who purchases the
through a weekly auction. Investors can submit competitive bids, acceptance then receives the payment guaranteed by the bank
where the treasury will accept the highest bids first. Alternatively, in the future. The investor’s return on a banker’s acceptance, like
investors can submit noncompetitive bids, which will that on commercial paper, is derived from the difference
automatically be accepted. The price to be paid by between the discounted price paid for the acceptance and the
noncompetitive bidders is the weighted average price of amount to be received in the future. Risk of Money Market
accepted bids. After accounting for noncompetitive bids, the Securities: When corporate treasurers, institutional investors
treasury accepts the highest competitive bids first and works it and individual investors invest in money market securities, they
way down until it has generated the amount of funds from are subject to the risk that the return on their investment will be
competitive bids that that it needs. Any bids below that cutoff less than anticipated. The forces that influence price
point are not accepted. Thus the price paid by the competitive movements of money market securities can not be perfectly
and noncompetitive bidders reflects the lowest price of the anticipated, so future money market prices can not be perfectly
competitive bids. Investors using the primary T-bill market anticipated either.
are assured that their bid will be accepted: The primary T-bill
market is an auction by mail. Investors submit bids on T-bill
applications for the maturity of their choice. Applications can be
obtained at no charge from a Federal Reserve district or branch
bank. Alternatively, investors can ask a broker or a commercial
bank to obtain and send in the application for them. Financial
institutions can arrange to submit their bid for T-bills online using
the treasury automated auction processing system. Financial
institutions using this arrangement set up an account with the
treasury. Then they can select the specific maturity and face
value that they desire and submit their bids electronically.
Payments to the treasury are withdrawn electronically from the