1. Treasury bills (T-bills)
1. Definition.
The term “treasury bills” is stated as the ST debt obligations issued by the ministry of
finance with the aim of covering a temporary deficit of state budget. Additionally, the
Government buys and sells T-bills to implement monetary policy.
2. Characteristics
The T-bills have high liquidity, so they are owned mainly by commercial banks. They
were released in the form of certificates or book entries. These tools are sold on a
discount basis, without coupon rate. The duration of Treasury bills usually 3 months, 6
months and 1 year.
In addition, it is the least risk instrument in the currency market because:
It is the State to guarantee the payment
The duration is short so that the interest rate fluctuation on the currency markets
was negligible.
As mentioned in the Inter-ministerial Circular No. 01/NHNN - TC IN THE
GUIDELINES FOR TREASURY BILLS, the selling price of treasury bills are
calculated as followed:
With:
: The selling price of Treasury bill
: The par value of treasury bills
: The interest rate for treasury bills winning (calculated in percentage %).
h: number of days in term bills
365: Number of days per year.
Inter-bank market
1. Definition :
This market is under the administration of the SBV in order to regulate capital in the
system of commercial banks. Banks with excess reserves lend fed funds, while banks
with deficient reserves borrow fed funds
2. Actually, the purpose of making loans in the interbank market is liquidated and payment,
not making loans to individuals or organizations. The borrowers (usually big commercial
banks) want to earn interest with excess funds and the lenders (small banks) want to
mobilize more funds.
2. Classification :
a. Domestic Interbank market :
Participants: SBV, credit institutions, mainly commercial banks
Purpose:
Ensure the required reserve
Management of required reserved by SBV
Ensure liquidity
Disbursement.
Business temporarily idle funds
As u can see, the Interbank Interest Rate (VNIBOR) in 17th March 2011 for
these durations:
Interest rate: negotiated by 2 party’s agreement (formed on the basis of
supply-demand relationship, partnership, ratings ...)
Term: Overnight, 1 week, 2 weeks, 1 month, 2 months, 3 months. Most are
under 3 months.
OTC transactions are: The same term has many market prices.
Trading methods:
Telephone, fax the contract....
Use Reuters Dealing System: Reuters has built a site the average exchange
rate on the interbank market of Vietnam (VNIBOR) on a daily basis bid of
some banks
3. Interest rate for interbank overnight loans of commercial banks
2008 2009
6.88%
Mean 12.52%
0.03%
Standard error 0.27%
6.80%
The median 10.50%
0.64%
The standard deviation 5.83%
4.60%
Minimum 3.50%
9.10%
Maximum 33.00%
b. Foreign Interbank market:
Participants: SBV, Credit institution.
Function:
SBV: To ensure foreign currency reserves, the payment service
requirements of customers,…
Tools: Implementing monetary policy through measures aimed at
stabilizing the exchange rate, affecting total money supply
CI: liquidity needs other currencies than USD and sell foreign currency
spot, forward loan transactions, send Eurodollar: overnight, term....
Banks have foreign elements are present in different price
Limitations of Interbank market in Vietnam:
The number of participants and size of transactions and limited mostly
to address the demand for liquidity. The transfer of capital is often
only one-sided between the group of banks lending: stated commercial
banks and group of banks borrowing: joint stock commercial banks,
joint venture banks and foreign bank branches.
4. Interest rate on the interbank market does not accurately reflect the
supply-demand relations and trends of the currency market.
