This document discusses various types of money market instruments, including: - Government securities like treasury bills with maturities less than 1 year that are considered very low risk. - Commercial paper which are unsecured short-term notes issued by large corporations to fund expenses like payroll. - Certificates of deposit that are time deposits held at banks for a fixed period that offer interest. - Interbank loans between financial institutions that have maturities of less than a week. - Repurchase agreements (repos) where securities are sold with an agreement to buy them back, used by banks and funds.

1. Money Market Instruments
Presented By
Syed Kashif Shah
I-D=4687
BBA(6th)

2. Money Market
• Money market is a place where those
securities are traded whose maturity life is
less than a year.

4. Money Market Instruments
• T-Bills & other Govt. Securities
• Commerical Papers
• Certificates of deposite
• The interbank market loans
• Repurchase agreements
• International Money Market securities

5. Money Market Instruments

6. T-Bills & other Govt. Securities
• T-Bills are short term money market
instruments issued by Govt. & backed by
it.
• Treasury bills were first authorized by
Congress(U.S.A) in 1929.
• T.Bills are secure and little or no rsik.
• Maturity life is from 12 weeks to 12
months.
• No interest or interest free.
• Sell at discounted rate.
• T-Bills Exempt from Tax (U.S.A)

7. Commercial Papers
• Commercial paper is a short-term
unsecured promissory note issued by
large,well known, creditworthy
corporations.
• To pay short-term debt e.g payroll.
• No collaterized.
• The maturity of commercial paper must be
less than 270 days (9 months).
• Average maturity life are 45 & 30-35 days.
• High rate of interest/Discounted rate

8. Certificates of deposit
• Certificates of deposit(CD) has been made by
banks for a fixed period of time.
• When the period ended we receive the principle
amount as well as interest amount.
• Advantage for depositor is that it can be sell out to
3rd party.
• Advantage for bank is, it is for fixed time period &
if a depositor withdrew amount before the time the
bank gave him lower price.
• Minimum denomination is 100,000 USD.
• Maturity life is three months, six months,9 months
etc.

9. Certificates of deposit
• This yield of the security is calculated:-
y=(PAR-P)/p..(360/n)
Example:-A three month CD for 100000USD
at 6% matures in 73 days.It is currently
trading at 99000 USD.Rate of return on
this CD current offering is
y=(100000-99000)/99000 (360/73)
y=0.01 4.93=0.0493 or 4.93%

10. The interbank market loan
• Interbank market refers to the subset of
bank-to-bank transactions that take.
• Maturity is one are less than one week &
mostly 14 days.
• Commercial banks are required to keep
reserves on deposits on central bank.
• Interest rate charge.

11. Repurchase Agreement
• Repurchase agreement are called
REPO.
• repurchase agreement, is the sale
of securities together with an
agreement for the seller to buy back
the securities at a later date.
• Buyer purchase securities from
seller.
• REPO is fully collaterized.

12. Repurchase Agreement
• open REPO:- No set of maturity
date but renewed each day upon
agreement of both counterparties.
• Term REPO:-Repo maturity date is
more than one day.
• The participants of REPO are banks
money market funds, non-financial
institutions.
• Maturity from 1 to 15 days & for
1,3,6 months.

13. Repurchase Agreement
• There is no Secondary market for
REPOs.
• REPO trasaction are negotiated
through telecommunications
network.
• Dealers & Brokers perform the
role of financial mkt. & receive
commission for such services.
• Mkt. Participants:-Central Bank
financial institutions & non-
financial institutions.

14. International Money Market
Securities
• These markets in which the borrowing &
lending denominated in a currency of some
other country takes place.
• In general,eurocurrency market instruments
are the same as other money market
instruments.
• Eurocurrency instruments is any instrument
denominated in a currency which differs from
that of the country in which it traded.
• Eurobanks are banks which specialize in
Eurocurrency business.

15. International Money Market
Securities
Euro Certificates of deposits (Euro
CDs)
• Euro Certificates of deposits (Euro CDs)
are negotiable deposits with a fixed time to
maturity.
• A short-term fixed loan fixed-rate time
deposit denominated in currency other
than the local currency e.g US dollar
deposit in a London bank.

17. International Money Market
Securities
Time deposits
• Time deposits are non negotiable deposits
with a fixed time to maturity.Due to
illiquidity their yields tend to be higher than
the yields on equivalent maturity of
negotiable Euro certificates of deposits.
• High rate of interest

18. International Money Market
Securities
Interbank Placements
• Interbank Placements are short term often
overnight interbank loans of Eurocurrency
time deposits.