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 discusses key aspects of secondary markets. It defines secondary markets as markets where securities are traded after being initially offered to the public in primary markets. The majority of trading occurs in secondary markets, which comprise equity and debt markets. Secondary markets offer both sellers and buyers advantages, such as sellers recouping a portion of the original purchase price, though they can also reduce sales for original sellers. Key products traded in secondary markets include equity shares, government securities, debentures, and bonds.
The document provides an overview of the Indian money market, including its history, structure, instruments, and benefits. It discusses key money market instruments like treasury bills, commercial paper, commercial bills, certificates of deposit, and repurchase agreements. These short-term instruments can be bought directly from issuers or through stock exchanges and banks. The money market provides liquidity to banks and companies while offering safety and returns to investors.
The document provides an overview of the Indian money market, including definitions, key participants, instruments, and objectives. The money market deals with short-term lending and borrowing of funds (less than one year) through instruments like treasury bills, commercial paper, certificates of deposit, and repurchase agreements. It aims to provide short-term borrowers access to funds and investors with safe and liquid assets to park surplus funds. The Reserve Bank of India plays an important role in regulating the money market and managing liquidity.
Capital markets are financial markets for long-term debt or equity-backed securities where money is provided for over a year. They channel wealth from savers to long-term investors like companies and governments. Capital markets have a primary market where new securities are sold and a secondary market where existing securities are traded. They mobilize savings, enable capital formation and economic growth, provide investment opportunities, and are regulated to protect investors. Money markets are for assets involved in borrowing and lending of up to one year. They include instruments like certificates of deposit, commercial paper, and repurchase agreements. Both capital and money markets are important for financing trade and industry while managing liquidity and risk.
This document discusses primary and secondary markets. The primary market involves the initial sale of securities to raise capital, such as through initial public offerings. It occurs before the secondary market and has no single location. The secondary market allows existing securities to be traded, creating liquidity. It occurs through stock exchanges and enables prices to be established and investors to buy and sell securities they already hold. Both markets play important roles in capital formation and resource allocation.
This ppt is prepared to provide detailed information regarding Forwards and Futures contracts of Derivatives the topics covered under this are Meaning of Forwards contracts, Underlying Assets of Forwards contracts, FEATURES OF FORWARD CONTRACTS, Tailored made, Why Forwards contracts, FUTURES CONTRACT, What is A Futures Contract, Characteristics of Futures contracts, Mechanism of Trading in Futures Market, Margin requirement, Marking-to-market (M2M), SETTLING A FUTURE POSITION, OFFSETTING, CASH DELIVERY, by Sundar, Assistant Professor of commerce.
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This document provides an overview of the Indian capital market. It defines capital markets as markets for trading long-term financial securities, where individuals and institutions can buy and sell debt and equity instruments. The capital market has a primary market for new security issuances and a secondary market for trading existing securities. It discusses the key participants in the market - issuers who raise capital, investors who provide capital, and intermediaries who facilitate transactions. The document also outlines the roles and functions of the capital market in facilitating capital formation, savings mobilization, and economic growth.
The document discusses key aspects of secondary markets. It defines secondary markets as markets where securities are traded after being initially offered to the public in primary markets. The majority of trading occurs in secondary markets, which comprise equity and debt markets. Secondary markets offer both sellers and buyers advantages, such as sellers recouping a portion of the original purchase price, though they can also reduce sales for original sellers. Key products traded in secondary markets include equity shares, government securities, debentures, and bonds.
The document provides an overview of the Indian money market, including its history, structure, instruments, and benefits. It discusses key money market instruments like treasury bills, commercial paper, commercial bills, certificates of deposit, and repurchase agreements. These short-term instruments can be bought directly from issuers or through stock exchanges and banks. The money market provides liquidity to banks and companies while offering safety and returns to investors.
The document provides an overview of the Indian money market, including definitions, key participants, instruments, and objectives. The money market deals with short-term lending and borrowing of funds (less than one year) through instruments like treasury bills, commercial paper, certificates of deposit, and repurchase agreements. It aims to provide short-term borrowers access to funds and investors with safe and liquid assets to park surplus funds. The Reserve Bank of India plays an important role in regulating the money market and managing liquidity.
Capital markets are financial markets for long-term debt or equity-backed securities where money is provided for over a year. They channel wealth from savers to long-term investors like companies and governments. Capital markets have a primary market where new securities are sold and a secondary market where existing securities are traded. They mobilize savings, enable capital formation and economic growth, provide investment opportunities, and are regulated to protect investors. Money markets are for assets involved in borrowing and lending of up to one year. They include instruments like certificates of deposit, commercial paper, and repurchase agreements. Both capital and money markets are important for financing trade and industry while managing liquidity and risk.
This document discusses primary and secondary markets. The primary market involves the initial sale of securities to raise capital, such as through initial public offerings. It occurs before the secondary market and has no single location. The secondary market allows existing securities to be traded, creating liquidity. It occurs through stock exchanges and enables prices to be established and investors to buy and sell securities they already hold. Both markets play important roles in capital formation and resource allocation.
This ppt is prepared to provide detailed information regarding Forwards and Futures contracts of Derivatives the topics covered under this are Meaning of Forwards contracts, Underlying Assets of Forwards contracts, FEATURES OF FORWARD CONTRACTS, Tailored made, Why Forwards contracts, FUTURES CONTRACT, What is A Futures Contract, Characteristics of Futures contracts, Mechanism of Trading in Futures Market, Margin requirement, Marking-to-market (M2M), SETTLING A FUTURE POSITION, OFFSETTING, CASH DELIVERY, by Sundar, Assistant Professor of commerce.
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This document provides an overview of the Indian capital market. It defines capital markets as markets for trading long-term financial securities, where individuals and institutions can buy and sell debt and equity instruments. The capital market has a primary market for new security issuances and a secondary market for trading existing securities. It discusses the key participants in the market - issuers who raise capital, investors who provide capital, and intermediaries who facilitate transactions. The document also outlines the roles and functions of the capital market in facilitating capital formation, savings mobilization, and economic growth.
The document provides an overview of capital markets, including its definition, objectives, key components and functions. It discusses the primary and secondary markets, and the major players in capital markets such as brokers, investment bankers, stock exchanges, underwriters, credit rating agencies, corporations, banks/financial institutions, and foreign investors.
The call money market deals in short-term loans between banks with maturities ranging from 1 day to 2 weeks. It provides banks a source of highly liquid funds to meet temporary shortfalls or surplus. Key participants include commercial banks. Call rates fluctuate daily and even hourly based on demand and supply in the market. Rates also vary across cities due to differences in liquidity. Volatility is driven by factors like banks borrowing to meet reserve requirements, occasional disruptions, and interventions in foreign exchange markets that impact liquidity.
Descriptions and explanation of all types of derivative instruments to trade with on the capital market.
http://www.koffeefinancial.com/Static/Learn.aspx
The document provides an overview of the money market. It defines the money market as the market for short-term, highly liquid debt instruments with maturities of one year or less, such as treasury bills, commercial paper, and certificates of deposit. These instruments are traded by phone between financial institutions, corporations, brokers, and dealers. The money market helps facilitate short-term borrowing and lending for participants. It consists of various sub-markets that collectively make up this important segment of the financial system.
This document provides an overview of capital markets, including the primary and secondary markets. It defines capital markets as markets for trading long-term investment instruments like bonds and stocks. The primary market involves new securities being issued, while the secondary market is where existing securities are traded. Key participants in the secondary market are stock exchanges, clearing corporations, and brokers. The Securities and Exchange Board of India (SEBI) regulates capital markets and aims to protect investors while promoting fair practices.
The document discusses financial markets and provides details about capital markets and money markets. It defines a financial market as any marketplace where buyers and sellers trade financial securities and commodities. Capital markets deal with longer term financial instruments like stocks and bonds, while money markets facilitate short term borrowing and lending with maturities of one year or less, including treasury bills, certificates of deposit, and commercial paper. Both markets play important roles in raising capital and facilitating transactions.
The document discusses various types of financial derivatives including futures, forwards, options, and swaps. It explains that derivatives derive their value from underlying assets and are used to hedge risk or profit from price changes. Futures contracts are exchange-traded standardized agreements to buy or sell assets at a future date, while other derivatives like forwards and swaps are customized over-the-counter transactions.
Derivatives - Basics of Derivatives contract covered in this pptSundar B N
Derivatives - Basics of Derivatives including forward, futures, swap and options contracts which covers HISTORY OF DERIVATIVES, CHARACTERISTICS OF DERIVATIVES , FEATURES OF DERIVATIVES, FUNCTIONS OF DERIVATIVES MARKET, USES OF DERIVATIVES, DIFFERENCE BETWEEN SHARES AND DERIVATIVES SHARES DERIVATIVES, DEFINITION OF UNDERLYING ASSET, DERIVATIVES ADVANTAGES AND DISADVANTAGES, PARTICIPANTS/ TRADERS IN DERIVATIVES MARKET, SPECULATORS, ARBITRAGEURS, HEDGER
Subscribe to Vision Academy for Video assistance
https://www.youtube.com/channel/UCjzpit_cXjdnzER_165mIiw
The document provides information on financial markets and how they work. It defines financial markets as markets that allow for the exchange of financial assets like shares, bonds, and government securities. Financial markets provide both short-term and long-term funds for investors and borrowers. The key types of financial markets discussed are the money market, which deals in short-term debt instruments, and the capital market, which deals in medium-to-long term instruments like stocks and bonds. Important components of these markets include primary markets for new securities issues, and secondary markets like stock exchanges for trading existing securities.
The document discusses portfolio management and Markowitz portfolio theory. It defines a portfolio as a combination of securities like stocks and bonds that are blended together to achieve optimal returns with minimum risk. Portfolio management aims to maximize returns and minimize risk through activities like monitoring performance, evaluating investments, and revising the portfolio. Markowitz portfolio theory introduced diversification to reduce unsystematic risk and developed algorithms to minimize portfolio risk by measuring the standard deviation of returns and considering the expected returns and covariances between securities. The theory assumes investors are risk-averse and can reduce risk by adding diversified investments to their portfolio.
This document provides an overview of derivative contracts, specifically forward and future contracts. It defines derivatives and describes how forward contracts are bilateral agreements between two parties to buy or sell an asset at a future date for a predetermined price. Future contracts are similar to forwards but are standardized and exchange-traded. The key differences between forwards and futures highlighted are that futures are traded on exchanges, require margin payments, follow daily settlement marked to market, and can be closed prior to delivery, whereas forwards are customized OTC contracts.
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.
The document discusses the differences and similarities between stocks, shares, and stock markets. It defines that a share is a unit of ownership in a company that is bought and sold, while stocks refer to the total number of shares a person owns. Both shares and stocks can be traded on a stock market, which is an organized market where securities are bought and sold. The stock market allows individuals and companies to trade shares and includes a primary market for new stock offerings and a secondary market for existing shares.
The document discusses stock exchanges in India. It defines a stock exchange as a market where existing securities are traded and outlines some key stock exchanges in India like Bombay Stock Exchange. It describes the functions of stock exchanges like providing liquidity and safety for investors. The document also discusses concepts like listing of securities on an exchange, online trading systems, demat accounts, and the roles of different participants in stock trading like brokers and speculators.
Module iv fixed income securities finalSantu Mishra
Fixed income securities are investments that pay a fixed cash flow according to a predetermined schedule. The payments are known in advance unlike variable income securities where payments change. Popular types of fixed income securities include government securities, corporate bonds, treasury bills, and commercial paper. Treasury bills are short term securities issued by the government to finance short term needs. Corporate bonds are debt instruments issued by companies to raise funds and have various types that differ based on issuer, maturity, coupon paid, and redemption features. Fixed income securities provide stable returns compared to other asset classes but have lower liquidity and are sensitive to market interest rates.
The foreign exchange market allows individuals, banks, and firms to buy and sell currencies. It operates globally through telecommunications and includes spot, forward, futures, swap, and options contracts. Major participants include commercial banks, central banks, brokers, importers/exporters, speculators, and hedgers. The market facilitates international trade and investment by enabling currency exchange.
The document discusses the macro economic environment and financial markets in India. It describes the money market and its components like call money, treasury bills, commercial bills, and commercial paper. It also discusses the organized and unorganized segments of the money market. The capital market is described along with the gilt-edged market and corporate securities market. Reforms to strengthen the capital market are also summarized.
The document discusses what a money market is, explaining that it is a short-term credit market where participants can borrow and lend for one year or less. It describes the key participants in the money market as banks, corporations, governments, and investors. Finally, it outlines some common money market instruments like certificates of deposit, repurchase agreements, commercial paper, and treasury bills.
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 provides an overview of capital markets, including its definition, objectives, key components and functions. It discusses the primary and secondary markets, and the major players in capital markets such as brokers, investment bankers, stock exchanges, underwriters, credit rating agencies, corporations, banks/financial institutions, and foreign investors.
The call money market deals in short-term loans between banks with maturities ranging from 1 day to 2 weeks. It provides banks a source of highly liquid funds to meet temporary shortfalls or surplus. Key participants include commercial banks. Call rates fluctuate daily and even hourly based on demand and supply in the market. Rates also vary across cities due to differences in liquidity. Volatility is driven by factors like banks borrowing to meet reserve requirements, occasional disruptions, and interventions in foreign exchange markets that impact liquidity.
Descriptions and explanation of all types of derivative instruments to trade with on the capital market.
http://www.koffeefinancial.com/Static/Learn.aspx
The document provides an overview of the money market. It defines the money market as the market for short-term, highly liquid debt instruments with maturities of one year or less, such as treasury bills, commercial paper, and certificates of deposit. These instruments are traded by phone between financial institutions, corporations, brokers, and dealers. The money market helps facilitate short-term borrowing and lending for participants. It consists of various sub-markets that collectively make up this important segment of the financial system.
This document provides an overview of capital markets, including the primary and secondary markets. It defines capital markets as markets for trading long-term investment instruments like bonds and stocks. The primary market involves new securities being issued, while the secondary market is where existing securities are traded. Key participants in the secondary market are stock exchanges, clearing corporations, and brokers. The Securities and Exchange Board of India (SEBI) regulates capital markets and aims to protect investors while promoting fair practices.
The document discusses financial markets and provides details about capital markets and money markets. It defines a financial market as any marketplace where buyers and sellers trade financial securities and commodities. Capital markets deal with longer term financial instruments like stocks and bonds, while money markets facilitate short term borrowing and lending with maturities of one year or less, including treasury bills, certificates of deposit, and commercial paper. Both markets play important roles in raising capital and facilitating transactions.
The document discusses various types of financial derivatives including futures, forwards, options, and swaps. It explains that derivatives derive their value from underlying assets and are used to hedge risk or profit from price changes. Futures contracts are exchange-traded standardized agreements to buy or sell assets at a future date, while other derivatives like forwards and swaps are customized over-the-counter transactions.
Derivatives - Basics of Derivatives contract covered in this pptSundar B N
Derivatives - Basics of Derivatives including forward, futures, swap and options contracts which covers HISTORY OF DERIVATIVES, CHARACTERISTICS OF DERIVATIVES , FEATURES OF DERIVATIVES, FUNCTIONS OF DERIVATIVES MARKET, USES OF DERIVATIVES, DIFFERENCE BETWEEN SHARES AND DERIVATIVES SHARES DERIVATIVES, DEFINITION OF UNDERLYING ASSET, DERIVATIVES ADVANTAGES AND DISADVANTAGES, PARTICIPANTS/ TRADERS IN DERIVATIVES MARKET, SPECULATORS, ARBITRAGEURS, HEDGER
Subscribe to Vision Academy for Video assistance
https://www.youtube.com/channel/UCjzpit_cXjdnzER_165mIiw
The document provides information on financial markets and how they work. It defines financial markets as markets that allow for the exchange of financial assets like shares, bonds, and government securities. Financial markets provide both short-term and long-term funds for investors and borrowers. The key types of financial markets discussed are the money market, which deals in short-term debt instruments, and the capital market, which deals in medium-to-long term instruments like stocks and bonds. Important components of these markets include primary markets for new securities issues, and secondary markets like stock exchanges for trading existing securities.
The document discusses portfolio management and Markowitz portfolio theory. It defines a portfolio as a combination of securities like stocks and bonds that are blended together to achieve optimal returns with minimum risk. Portfolio management aims to maximize returns and minimize risk through activities like monitoring performance, evaluating investments, and revising the portfolio. Markowitz portfolio theory introduced diversification to reduce unsystematic risk and developed algorithms to minimize portfolio risk by measuring the standard deviation of returns and considering the expected returns and covariances between securities. The theory assumes investors are risk-averse and can reduce risk by adding diversified investments to their portfolio.
This document provides an overview of derivative contracts, specifically forward and future contracts. It defines derivatives and describes how forward contracts are bilateral agreements between two parties to buy or sell an asset at a future date for a predetermined price. Future contracts are similar to forwards but are standardized and exchange-traded. The key differences between forwards and futures highlighted are that futures are traded on exchanges, require margin payments, follow daily settlement marked to market, and can be closed prior to delivery, whereas forwards are customized OTC contracts.
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.
The document discusses the differences and similarities between stocks, shares, and stock markets. It defines that a share is a unit of ownership in a company that is bought and sold, while stocks refer to the total number of shares a person owns. Both shares and stocks can be traded on a stock market, which is an organized market where securities are bought and sold. The stock market allows individuals and companies to trade shares and includes a primary market for new stock offerings and a secondary market for existing shares.
The document discusses stock exchanges in India. It defines a stock exchange as a market where existing securities are traded and outlines some key stock exchanges in India like Bombay Stock Exchange. It describes the functions of stock exchanges like providing liquidity and safety for investors. The document also discusses concepts like listing of securities on an exchange, online trading systems, demat accounts, and the roles of different participants in stock trading like brokers and speculators.
Module iv fixed income securities finalSantu Mishra
Fixed income securities are investments that pay a fixed cash flow according to a predetermined schedule. The payments are known in advance unlike variable income securities where payments change. Popular types of fixed income securities include government securities, corporate bonds, treasury bills, and commercial paper. Treasury bills are short term securities issued by the government to finance short term needs. Corporate bonds are debt instruments issued by companies to raise funds and have various types that differ based on issuer, maturity, coupon paid, and redemption features. Fixed income securities provide stable returns compared to other asset classes but have lower liquidity and are sensitive to market interest rates.
The foreign exchange market allows individuals, banks, and firms to buy and sell currencies. It operates globally through telecommunications and includes spot, forward, futures, swap, and options contracts. Major participants include commercial banks, central banks, brokers, importers/exporters, speculators, and hedgers. The market facilitates international trade and investment by enabling currency exchange.
The document discusses the macro economic environment and financial markets in India. It describes the money market and its components like call money, treasury bills, commercial bills, and commercial paper. It also discusses the organized and unorganized segments of the money market. The capital market is described along with the gilt-edged market and corporate securities market. Reforms to strengthen the capital market are also summarized.
The document discusses what a money market is, explaining that it is a short-term credit market where participants can borrow and lend for one year or less. It describes the key participants in the money market as banks, corporations, governments, and investors. Finally, it outlines some common money market instruments like certificates of deposit, repurchase agreements, commercial paper, and treasury bills.
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 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.
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.
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 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.
Money Market and its objectives, importance its Instruments, Zain Ali
The money market is where short-term financial assets are traded, with maturities of one year or less. It involves the buying and selling of debt instruments between banks, corporations, governments and other financial institutions. Key instruments of the money market include treasury bills, commercial paper, certificates of deposit and floating rate notes. The money market operates through various submarkets and provides short-term funding for participants to meet liquidity needs and manage surplus funds.
- 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 bankers acceptances are bought and sold.
This document provides an overview of the Indian financial system, including its key constituents and components. It discusses the importance of financial regulation in maintaining stability and integrity. The main objectives of financial regulatory bodies in India are financial stability, consumer protection, maintaining market confidence, and reducing financial crime. The financial system consists of financial markets, intermediation, and instruments. Major components include money markets, capital markets, foreign exchange markets, and credit markets. Common financial instruments include treasury bills, certificates of deposit, commercial papers, and various equity and debt instruments.
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.
The document provides an overview of financial markets, with a focus on comparing money markets and capital markets. It defines money markets as short-term lending markets for securities like treasury bills and commercial paper, while capital markets deal in longer-term securities like stocks, bonds, and retained earnings. Key differences highlighted include maturity periods (under 1 year for money markets, over 1 year for capital markets), liquidity (higher for money markets), and risk level (lower for money markets). Major institutions involved include central banks, commercial banks, stock exchanges, and non-banking financial institutions.
The document provides an overview of financial markets and institutions. It discusses the roles of financial markets in transferring funds from surplus units to deficit units through various debt and equity securities. It also describes different types of financial markets, securities, and regulations. Financial institutions help reduce transaction costs and facilitate indirect financing between lenders and borrowers.
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
Fiduciary or paper money is issued by the Central Bank on the basis of
computation of estimated demand for cash. Monetary policy guides the Central
Bank’s supply of money in order to achieve the objectives of price stability (or low
inflation rate), full employment, and growth in aggregate income.
This document compares and contrasts money markets and capital markets. It defines money markets as markets for short-term debt instruments with maturities of 1 year or less, like treasury bills and commercial paper, while capital markets deal in longer term securities like stocks, bonds and debentures. Key differences include money markets focusing on liquidity and short-term borrowing needs, while capital markets help raise long term financing for businesses and infrastructure. Risk is also generally lower in money markets due to shorter durations, while returns are higher in capital markets. Both play important roles in channeling funds between lenders and borrowers in an economy.
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 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.
The document discusses the financial system and intermediaries. It defines the financial system as comprising financial assets, institutions, and markets that enable financial transactions. There are three main components - financial assets like loans and deposits, financial institutions like banks and mutual funds, and financial markets like money markets and capital markets. Financial intermediaries play an important role by channeling funds from surplus to deficit areas and reducing risks and transaction costs. The main types of intermediaries are depository institutions, contractual savings institutions, and investment intermediaries.
The document provides an introduction to the Indian financial system, which includes both formal/organized and informal/unorganized components. It describes the various subsystems that make up the formal financial system, including financial institutions, markets, instruments, and services. It also discusses the roles and interactions of different elements like banks, non-banking institutions, money markets, capital markets, primary markets, and secondary markets.
This document discusses strategic human resource management. It begins by outlining HR's strategic roles in formulating integrated HR strategies, supporting business goals, and contributing to business strategies. It then discusses seven steps for HR to be strategic, including being aware of business context. The document also discusses approaches to strategy formulation, the new functional role of HR with a focus on business outcomes, the basis and principles of strategic HRM, concepts like the resource-based view and strategic fit, perspectives on strategic HRM, and the best practice approach.
The document discusses international human resource management (IHRM), which involves managing human resources across national borders. IHRM differs from domestic HRM in several ways, such as requiring more HR activities to deal with taxation, culture, and legal issues in multiple countries. It also requires a broader perspective to meet diverse needs. Managing employees across cultures and countries presents various challenges for IHRM, such as high expatriate failure rates, developing a globally dispersed workforce, and overcoming cultural and legal differences between locations. Globalization and pressures of competitiveness have increased the importance of effective IHRM for international organizations.
Strategic management and strategic human resource management (SHRM) are discussed. Strategy is defined as a perspective, position, plan, and pattern that provides general guidance for actions to achieve organizational ends. SHRM involves integrating HR policies and practices to support business strategy and goals. Effective SHRM requires aligning HR with strategy, developing employees' skills and commitment, and ensuring HR strategies and policies work coherently together to fulfill organizational strategy. The document discusses various models and approaches to strategic management and SHRM.
The document discusses financial statement analysis and financial models. It provides an overview of financial statement analysis, including that it involves selecting, evaluating, and interpreting financial data to assess a company's financial condition and performance. It also discusses the objectives of financial statement analysis, the different types of financial statements (income statement, balance sheet, cash flow statement), and methods of analyzing financial statements, including ratio analysis, horizontal analysis, vertical analysis and common-size statements. The document is intended to provide information on financial statement analysis for investors and other stakeholders.
This document provides an introduction to corporate finance. It discusses that corporate finance involves managing a company's assets and financing decisions. This includes capital budgeting, credit policy, cash management, and decisions around capital structure, equity financing, dividends, and borrowing. The goals of corporate finance are to determine what long-term investments a firm should make, how to raise money for investments, and how much cash is needed for short-term obligations.
This document discusses capital structure and the limits of using debt. It introduces the concept that a firm's value is the sum of its debt and equity values. While increasing leverage can increase firm value by taking advantage of tax benefits, it also increases financial distress costs. There is an optimal capital structure that balances these factors. The document also discusses how signaling and agency costs further complicate determining the optimal structure.
The document provides an overview of the foreign exchange market. It discusses that the foreign exchange market allows for the exchange of one country's currency for another and determines exchange rates. It operates as an over-the-counter, decentralized global market open 24 hours. Major players include banks, corporations, central banks, speculators, and arbitrageurs. Common transaction types are spots, forwards, and swaps. Factors like interest rates, inflation, economic growth, and political stability influence exchange rates.
Monetary policy involves controlling the supply of money in an economy to achieve goals like price stability and economic growth. The central bank implements monetary policy using tools like open market operations, adjusting reserve ratios, and setting interest rates. These tools work through channels like interest rates and credit to influence money supply, inflation, and other macroeconomic variables. Effective monetary policy requires coordination between fiscal and monetary authorities to avoid conflicting policies. The Bangladesh Bank follows an inflation targeting framework and uses reserve money and broad money as targets to achieve its goals of stable prices, growth, and balance of payments.
This document discusses mutual funds, pension funds, and mortgage financing. It defines mutual funds as investments that pool money from many investors to purchase securities. The main benefits of mutual funds are diversification and professional management. Pension funds accumulate over a worker's career through contributions and investment returns. They can be defined-benefit plans where employers guarantee payments, or defined-contribution plans where benefits depend on accumulated contributions. Mortgages are loans used to purchase property, secured by the property. Financial institutions originate mortgages and may retain or sell them in mortgage markets.
The document discusses various topics related to commercial banking including:
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2. It describes different types of banking systems used around the world such as branch banking, unit banking, and corresponding banking.
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- Key features of bonds include their long-term nature, fixed face value, fixed interest payments, and indenture outlining terms. Additional features can include trustees, covenants, and repayment procedures.
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- Reasons for investment classification including assessing quality, risk level, and specific provision calculations.
- Basis for classification as continuous, demand, term or short term agri/micro investments.
- Rules for classification based on past due dates and investment type and size.
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The document discusses interest rates and bond yields. It covers two main theories of how interest rates are determined: the loanable funds theory and liquidity preference theory. The loanable funds theory states that interest rates are determined by the supply and demand of loanable funds in the market. The liquidity preference theory argues that interest rates are determined by the supply of money and demand to hold money. The document also discusses how various economic factors can influence interest rate movements. It defines bond yields and the yield to maturity calculation.
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2. Topics to be covered:
Overview of Money Markets
Characteristics of Money Markets
Money market funds (MMFs) vs. bank deposits
Money Market Securities
Institutional Use of Money Markets
Globalization of Money Markets
3. Overview of Money Market
The money market is a segment of the financial market in which
financial instruments with high liquidity and very short
maturities are traded. The money market is used by participants
as a means for borrowing and lending in the short term, from
several days to just under a year. Money market securities consist
of negotiable certificates of deposits (CDs), banker's
acceptances, Treasury bills, commercial paper, municipal notes,
repurchase agreements (repos). Money market investments are
also called cash investments because of their short maturities.
4. Overview of Money Market
cont….
Money markets are used to facilitate the transfer of short-term
funds from individuals, corporations, or governments with excess
funds to those with deficient funds. Even investors who focus on
long-term securities tend to hold some money market securities.
Money markets enable financial market participants to maintain
liquidity.
5. Overview of Money Market
cont …
In Bangladesh, the money market comprises banks and financial
institutions as intermediaries, 20 of them are primary dealers in
treasury securities. Interbank clean and repo based lending, Call
money, BB's repo, reverse repo auctions, BB bills auctions,
treasury bills auctions are primary operations in the money
market, there is also active secondary trade in treasury bills (up
to 1 year maturity).
6. Borrowers and Lenders in the Money Market
Central Banks
(supplying funds and information
and promoting market stability)
Corporate Borrowers
& Cash -Management
Customers Needing to
Invest Cash Surpluses
Security
Dealers &
Brokers
Money
Center
Banks
Nonbank
Financial
Institutions
(mutual funds,
insurers, etc.)
Government
Treasuries
(borrowing and
redeeming
securities)
7. Participants
Commercial banks
Finance, industrial, and service companies
Governments
Money market mutual funds
All other financial institutions (investing)
8. The Purpose of Money Markets
Provides a place for warehousing surplus funds for short periods
of time.
Borrowers from money market provide low-cost source of
temporary funds.
Corporations and government use these markets because the
timing of cash inflows and outflows are not well synchronized.
Money markets provide a way to solve these cash-timing
problems.
9. Characteristics of the Money Market
The money market is the mechanism through which holders of
temporary cash surpluses meet holders of temporary cash
deficits.
The money market arises because for most individuals and
institutions, cash inflows and outflows are rarely in perfect
harmony with each other, and the holding of idle surplus cash is
expensive.
Money market investors seek mainly safety and liquidity, plus
the opportunity to earn some interest income.
Because funds invested in the money market represent only
temporary cash surpluses and are usually needed in the near
future, money market investors are especially sensitive to risk.
10. Characteristics of the Money Market
cont….
Original maturities on money market instruments range from as
short as one day on many loans to banks and security dealers to a
full year on some bank deposits and T-bills.
But because there are so many money market securities
outstanding, some of which reach maturity each day, investors
have a wide menu of actual maturities from which to make their
selections.
The money market is extremely broad and deep. It can absorb a
large volume of transactions with only small effects on security
prices and interest rates.
11. Characteristics of the Money Market
cont….
The money market is also very efficient. Securities dealers, major
banks, and funds brokers maintain constant contact with one
another through a vast telephone and computer network and are
hence alert to any bargains.
In contrast, funds transferred by checks are known as
clearinghouse funds. The clearing house is a location where
checks and other cash items are delivered and passed from one
depository institution to another.
Clearing house funds are an acceptable means of payment for
most purposes, but not in the money market, where speed is of
essence. Clearing house funds also have an element of risk.
12. Characteristics of the Money Market
cont….
The money market is a wholesale market for funds – most
trading occurs in large volume.
The market is dominated by a relatively small number of large
financial institutions that account for the bulk funds trading.
Securities also move readily from sellers to buyers through the
market-making activities of major security dealers and brokers.
And, of course, governments and central banks around the world
play major roles in the money market as the largest borrowers
and as regulators.
13. Types of Investment Risk
Market risk – The risk that the market value of an asset will
decline, resulting in a capital loss when sold. Also called interest
rate risk.
Reinvestment risk – The risk that an investor will be forced to
place earnings from a security into a lower-yielding investment
because interest rates have fallen.
Default risk – The probability that a borrower fails to meet one
or more promised principal or interest payments on a security.
14. Types of Investment Risk
Inflation risk – The risk that increases in the general price level
will reduce the purchasing power of earnings from the
investment.
Currency risk – The risk that adverse movements in the price of
a currency will reduce the net rate of return from a foreign
investment. Also called exchange rate risk.
Political risk – The probability that changes in government laws
or regulations will reduce the expected return from an
investment.
15. The Pattern of Money Market
Interest Rates
The foundation of the market’s structure is the level of yields on
Treasury bills.
Most other yields in the money market are scaled upward from
Treasury bill rates.
The key price and yield determinants are safety, liquidity,
marketability, and taxability.
16. Functions of Money Markets
Transfer Funds (savers to borrowers)
Serves as a pricing benchmark
Facilitates monetary policy by allowing the Central Bank to
control inflation by buying and selling money market
instruments
Provide liquidity to investors
Are issued by corporations and governments to obtain short-
term funds
Are commonly purchased by corporations and government
agencies that have funds available for a short-term period
17. Money market funds (MMFs) vs.
Bank Deposits
Similarly to banks, MMFs play a role in the monetary system of
the economy. Money market funds also present several features
that make them similar to bank deposits: in particular, they offer
preservation of principal and immediate liquidity. In some
jurisdictions, MMFs also offer transaction account services and
play a role in the payment system.
18. Money market funds (MMFs) vs.
Bank Deposits cont…
MMFs also perform bank-like functions because of their role in
credit transformation: Through MMFs, investors earn returns
from a credit, maturity or liquidity mismatch between the
investor funding and the investments from which the return is
generated. Additionally, investors may redeem their investments
on demand, even though MMF assets are longer term. However,
compared to banks, the extent of this transformation is reduced
in the case of MMFs, which have to comply with strict
requirements in terms of duration (e.g., the weighted average
maturity of an MMF pool is generally 60 days) and credit quality.
19. Money market funds (MMFs) vs.
Bank Deposits
An additional difference from banks is that MMFs do not
generally employ leverage (although they may, like any other
lender in the markets, contribute to the building-up of leverage
in the system). Also, investors in MMFs are shareholders, not
creditors, and the MMF [sponsor/operator] is subject to a
fiduciary duty to treat its shareholders fairly. Moreover, banks
may hold long-term, often highly non-transparent investments
and may have substantial off-balance sheet commitments.
20. Money Market Securities
Money market instruments are defined as debt instruments with
a maturity of one year or less.
Treasury Bills
Commercial paper
Negotiable certificates of deposits
Repurchase agreements
Banker’s acceptances
21. Money Market Securities
Treasury bills:
Are issued by the Central Bank to fulfill the requirement of
government.
Are sold weekly through an auction
Have a par value of $1,000 and multiples
Are attractive to investors because they are backed by the
government and are free of default risk
Are liquid
Can be sold in the secondary market through government
security dealers (Under process @ Bangladesh money
market).
22. Money Market Securities
Investors in Treasury bills
Depository institutions because T-bills can be easily
liquidated
Other financial institutions in case cash outflows
exceed cash inflows
Individuals with substantial savings for liquidity
purposes
Corporations to have easy access to funding for
unanticipated expenses
23. Money Market Securities
Pricing Treasury bills
T-bills do not pay interest; instead they are priced at a
discount from par value.
The price is dependent on the investor’s required rate of
return:
To price a T-bill with a maturity less than one year, the
annualized return can be reduced by the fraction of the
year in which funds would be invested
n
m kP )1/(Par
24. Money Market Securities
Computing the Price of a Treasury Bills:
A one-year Treasury bill has a par value of $10,000. Investors
require a return of 8 percent on the T-bill. What is the price
investors would be willing to pay for this T-bill?
259,9$
)08.1/(000,10$
)1/(Par
n
m kP
25. Money Market Securities
Treasury bill auction
Investors submit bids on T-bill applications for the
maturity of their choice
Financial institutions can submit their bids using the
Treasury Automated Auction Processing System
Institutions must set up an account with the Treasury
Payments to the Treasury are withdrawn electronically
from the account
Payments received from the Treasury are deposited into
the account
26. Money Market Securities
Treasury bill auction
Weekly auctions include 13-week and 26-week T-bills
4-week T-bills are offered when the Treasury anticipates
a short-term cash deficiency
Cash management bills are also occasionally offered
Investors can submit competitive or non-competitive
bids
The bids of non-competitive bidders are accepted
The highest competitive bids are accepted
Any bids below the cut-off are not accepted
27. Money Market Securities
Estimating the yield
T-bills are sold at a discount from par value
The yield is influenced by the difference between the
selling price and the purchase price
If a newly-issued T-bill is purchased and held until
maturity, the yield is based on the difference between
par value and the purchase price
The annualized yield is:
`Where, SP = Selling Price
PP = Purchase Price
n = holding period
nPP
PPSP
YT
365
28. Money Market Securities
Commercial paper:
Is a short-term debt instrument issued by well-known,
creditworthy firms
Is typically unsecured
Is issued to provide liquidity to finance a firm’s investment in
inventory and accounts receivable
Is an alternative to short-term bank loans
Has a typical maturity between 20 and 270 days
Is issued by financial institutions such as finance companies
and bank holding companies
Has no active secondary market
Is typically not purchased directly by individual investors
29. Money Market Securities
Commercial paper:
Ratings
The risk of default depends on the issuer’s financial
condition and cash flow
Commercial paper rating serves as an indicator of the
potential risk of default
Corporations can more easily place commercial paper
that is assigned a top-tier rating
Junk commercial paper is rated low or not rated at all
30. Money Market Securities
Commercial paper:
Volume of commercial paper:
Has increased substantially over time
Is commonly reduced during recessionary periods
Placement
Some firms place commercial paper directly with
investors
Most firms rely on commercial paper dealers to sell it
Some firms (such as finance companies) create in-house
departments to place commercial paper
31. Money Market Securities
Commercial paper:
Backing commercial paper
Issuers typically maintain a backup line of credit
Allows the company the right to borrow a specified
maximum amount of funds over a specified period of
time
Involves a fee in the form of a direct percentage or in the
form of required compensating balances
32. Money Market Securities
Commercial paper:
Estimating the yield
The yield on commercial paper is slightly higher than on
a T-bill
The nominal return is the difference between the price
paid and the par value day commercial paper with a 120
an investor purchase. What is the annualized $289,000
for a price of $300,000 par value of commercial paper
yield:
%42.11
120
360
289,000
289,000-300,000
cpY
33. Money Market Securities
Negotiable certificates of deposit (NCDs):
Are issued by large commercial banks and other depository
institutions as a short-term source of funds
Are often purchased by non-financial corporations
Are sometimes purchased by money market funds
Have a typical maturity between two weeks and one year
Have a secondary market
34. Money Market Securities
Negotiable certificates of deposit (NCDs):
Placement
Directly
Through a correspondent institution
Through securities dealers
Premium
NCDs offer a premium above the T-bill yield to
compensate for less liquidity and safety
Premiums are generally higher during recessionary
periods
35. Money Market Securities
Negotiable certificates of deposit (NCDs):
Yield
NCDs provide a return in the form of interest and the
difference between the price at which the NCD was
redeemed or sold and the purchase price
If investors purchase a NCD and hold it until maturity,
their annualized yield is the interest rate
36. Repurchase Agreement
Repo can be defined as an agreement in which one party sells
securities or other assets to a counterparty, and simultaneously
commits to repurchase the same or similar assets from the
counterparty, at an agreed future date or on demand, at a
repurchase price equal to the original sale price plus a return on
the use of the sale proceeds during the term of the repo.
37. Repurchase Agreement
Between the sale and the repurchase:
The seller gets the use of the cash proceeds of the sale of the
assets.
The buyer gets legal title to the assets received in exchange for
the cash it has paid. The buyer holds the assets in the first
instance as collateral. If the seller defaults on the repurchase, the
buyer can liquidate the assets to recover some or all of its cash. In
addition, because the buyer owns the collateral assets, the buyer
can re-use them during the term of the repo by selling the assets
outright, repoing them or pledging them to a third party. The
buyer must buy back the assets by the end of the repo, in order to
be able to sell them back to the seller.
38. Repurchase Agreement
Between the sale and the repurchase:
‘Repo’ is the generic term for two equivalent instruments:
• Repurchase agreements (also known as ‘classic repos’)
• Buy/sell-backs
Repurchase agreements and buy/sell-backs share the same basic
legal and operational mechanisms (i.e. a sale of assets and a
commitment by the seller to repurchase those assets from the
buyer at a later date). The principal differences between a
repurchase agreement and a buy/sell-back is that, repurchase
agreements are always documented (i.e. they are evidenced by a
written contract), whereas traditional buy/sell-backs are not.
39. Repurchase Agreement
Consequently, the two legs of a repurchase agreement are part of
a single legal contract, whereas the two legs of a traditional,
undocumented buy/sell-back are implicitly separate contracts.
Many of the terms used in the market to describe repos are taken
from standard legal agreements, such as the Global Master
Repurchase Agreement (GMRA), which are commonly used to
document transactions in the international repo market.
40. Repurchase Agreement
Seller : Collateral-provider, cash-taker (borrower).
Buyer : Collateral-taker, cash-provider (lender).
Purchase : Sale of assets at the start of a repo.
Repurchase : Repurchase of assets at the end of a repo.
Purchase date: Value date: the date on which cash and assets
are actually exchanged.
Repurchase date: Maturity date: the date on which cash and
assets are returned to their original owners.
Purchase price: Cash value paid by the buyer of assets to the
seller on the purchase date.
41. Repurchase Agreement
Repurchase price: Cash value paid by the seller of assets to the
buyer on the repurchase date: equal to the purchase price plus a
return on the use of the cash over the term of the repo. In
buy/sell-backs, the repurchase price may be net of coupon or
dividend payments made on the assets during the term of the
repo
Collateral: Assets sold in a repo on the purchase date.
Equivalent collateral: Assets repurchased in a repo by the seller
on the repurchase date.
Repo rate: Percentage per annum rate of return paid by the
seller for the use of the cash over the term of a repurchase
agreement and included in the repurchase price.
42. Repurchase Agreement
Although the term ‘repo’ is applied to the whole transaction, it is
market convention to specifically describe the seller’s side of the
transaction as the ‘repo’ and the buyer’s side as the ‘reverse repo’.
Dealers talk about sellers ‘repoing out’ collateral and buyers
‘reversing’ in collateral.
43. Repurchase Agreement
Comparing repurchase agreements and buy/sell-backs
There is much confusion about the differences between
repurchase agreements and buy/sell-backs. Comparisons are
complicated by the fact that buy/sell-backs can now be
documented (so that there are three types of repo: repurchase
agreements, undocumented buy/sell-backs, and documented
buy/sell-backs). Undocumented buy/sell-backs, which are the
traditional form of the instrument, have a number of legal and
operational drawbacks in comparison with repurchase
agreements and documented buy/sell-backs.
44. Banker’s Acceptance
Indicate that a bank accepts responsibility for a future
payments
Are commonly used for international trade transactions
An unknown importer’s bank may serve as the
guarantor
Exporters frequently sell an acceptance before the
payment date
Have a return equal to the difference between the discounted
price paid and the amount to be received in the future
Have an active secondary market facilitated by dealers
45. Banker’s Acceptance
Steps involved in banker’s acceptances
First, the importer places a purchase order for goods
The importer asks its bank to issue a letter of credit
(L/C) on its behalf
Represents a commitment by that bank to back the
payment owed to the foreign exporter
The L/C is presented to the exporter’s bank
The exporter sends the goods to the importer and the
shipping documents to its bank
The shipping documents are passed along to the
importer’s bank
46. Sequence of Steps in the Creation of A
Banker’s Acceptance
Importer Exporter
American Bank
(Importer’s Bank)
Bangladeshi Bank
(Exporter’s Bank)
1 Purchase Order
5 Shipment of Goods
2 L/C Application
3 L/C
7
Shipping Documents
& Time Draft Accepted
4 L/C Notification
6 Shipping Documents
48. Institutional Use of Money Markets
Financial institutions purchase money market securities to earn
a return and maintain adequate liquidity
Institutions issue money market securities when experiencing a
temporary shortage of cash
Money market securities enhance liquidity:
Newly-issued securities generate cash
Institutions that previously purchased securities will generate
cash upon liquidation
Most institutions hold either securities that have very active
secondary markets or securities with short-term maturities
49. Institutional Use of Money Markets
Financial institutions with uncertain cash in- and outflows
maintain additional money market securities
Institutions that purchase securities act as a creditor to the initial
issuer
Some institutions issue their own money market instruments to
obtain cash
Many money market transaction involve two financial
institutions
50. Indicators of future money
market security prices
Economic growth is monitored since it signals
changes in short-term interest rates and the
required return from investing in money market
securities
Employment
GDP
Retail sales
Industrial production
Consumer confidence
Indicators of inflation
51. Risk of Money Market Securities
Because of the short maturity, money market securities are
generally not subject to interest rate risk, but they are subject to
default risk.
Investors commonly invest in securities that offer a slightly
higher yield than T-bills and are very unlikely to default.
Although investors can assess economic and firm-specific
conditions to determine credit risk, information about the
issuer’s financial condition is limited.
Money market participants can use sensitivity analysis to
determine how the value of money market securities may change
in response to a change in interest rates
52. Interaction among Money
Market Yields
Money market instruments are substitutes for each other
Market forces will correct disparities in yield and the yields
among securities tend to be similar
In periods of heightened uncertainty, investors tend to shift from
risky money market securities to Treasuries
Flight to quality
Creates a greater differential between yields
53. Globalization of Money Markets
As international trade and financing have grown, money markets
have developed in Europe, Asia and South America.
International banks facilitate the international money markets
by accepting deposits and providing loans in a wide variety of
currencies.
Interest rate differentials occur because geographic markets
are somewhat segmented
54. Globalization of Money Markets
Interest rates have become more highly correlated:
Conversion to the euro
The flow of funds between countries has increased because
of:
Tax differences
Speculation on exchange rate movements
A reduction in government barriers
Eurodollar deposits, Euro notes, and Euro-commercial paper are
widely traded in international money markets
55. Eurodollar deposits and Euro notes
Eurodollar certificates of deposit are U.S. dollar deposits in
non-U.S. banks
Have increased because of increasing international
trade and historical U.S. interest rate ceilings
In the Eurodollar market, banks channel deposited funds to
other firms that need to borrow them in the form of
Eurodollar loans
Typical transactions are $1 million or more
Eurodollar CDs are not subject to reserve requirements
Interest rates are attractive for both depositors and
borrowers
Rates offered on Eurodollar deposits are slightly higher
than NCD rates
56. Eurodollar deposits and Euro notes
Investors in fixed-rate Eurodollar CDs are adversely affected
by rising market rates
Issuers of fixed-rate Eurodollar CDs are adversely affected by
declining rates
Eurodollar-floating-rate CDs (FRCDs) periodically
adjust to LIBOR
The Eurocurrency market is made up of Euro-banks that
accept large deposits and provide large loans in foreign
currencies
Loans in the Euro credit market have longer maturities than
loans in the Eurocurrency market
Short-term Euro notes are issued in bearer form with
maturities of one, three, and six months
57. London Interbank Market
Some large London banks act as brokers in the interbank
Eurodollar market. Banks from around the world buy and
sell overnight funds in the market. The rate paid by banks
buying funds is the London Interbank bid rate (LIBID).
Funds are offered for sale in this market at the London
Interbank offer rate (LIBOR). The spread between LIBID and
LIBOR seldom exceeds 0.125%.
58. London Interbank Market
Euro-commercial paper (Euro-CP):
Is issued without the backing of a banking syndicate
Has maturities tailored to satisfy investors
Has a secondary market run by CP dealers
Has a rate 50 to 100 basis points above LIBOR
Is sold by dealers at a transaction cost between 5 and 10 basis
points of the face value