...MONEY MARKET As money became a commodity, the money market became a component of the financial markets for assets involved in short-term borrowing, lending, buying and selling with original maturities of one year or less. Trading in the money markets is done over the counter, is wholesale. Various instruments exist, such as Treasury bills, commercial paper, bankers' acceptances, deposits, certificates of deposit, bills of exchange, repurchase agreements, federal funds, and short-lived mortgage-, and asset-backed securities. It provides liquidity funding for the global financial system. Money markets and capital markets are parts of financial markets. The instruments bear differing maturities, currencies, credit risks, and structure. Therefore they may be used to distribute the exposure. The money market developed because parties had surplus funds, while others needed cash. Today it comprises cash instruments as well. Functions of the money market * transfer of large sums of money * transfer from parties with surplus funds to parties with a deficit * allow governments to raise funds * help to implement monetary policy * determine short-term interest rates Money market organizations * Trading companies often purchase banker’s acceptance to be tendered for payment to overseas suppliers. * Retail and institutional money market funds * Banks * Central banks * Cash management programs * Merchant Banks Common money market instruments ...
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...Lecture 2 THE MONEY MARKET . Money Market Valuation Money market securities Financial Markets and Institutions Lecture content 2 After studying the material in this topic you should be able to: • „ explain the differences between the securities traded in the money market. • „ calculate the price of a money market security. • „describe the impact of changing yields and maturity on the price of a money market security. Financial Markets and Institutions Learning Objectives 3 • „The money market is an over-the-counter wholesale market. • „Short-term interest rate securities are traded in this market. These securities: • „have a maturity of less than one year. • „make only one payment, their face value at maturity. • „Their price is less than their face value. Financial Markets and Institutions MONEY MARKET 4 The Purpose of Money Markets • Borrowers from money market: provides low-cost source of temporary funds • Corporations and U.S. 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. Financial Markets and Institutions • Investors in Money Market: Provides a place for warehousing surplus funds for short periods of time 5 Money Market Securities • Characteristics: • • • • • Maturity within one year Low default risk They are issued by corporations and governments to ...
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...Money market in India is the money market for short-term funds with maturity ranging from overnight to one year in India including financial instruments that are deemed to be close substitutes of money Instruments in Money market Commercial paper An unsecured, short-term debt instrument issued by a corporation, typically for the financing of accounts receivable, inventories and meeting short-term liabilities. Maturities on commercial paper rarely range any longer than 270 days. The debt is usually issued at a discount, reflecting prevailing market interest rates. Usually done by companies having high credit worthiness and rating Call money/Notice money/term money The money market primarily facilitates lending and borrowing of funds between banks and entities like Primary Dealers (PDs). Banks and PDs borrow and lend overnight or for the short period to meet their short term mismatches in fund positions. This borrowing and lending is on unsecured basis. ‘Call Money’ is the borrowing or lending of funds for 1day. Where money is borrowed or lend for period between 2 days and 14 days it is known as ‘Notice Money’. And ‘Term Money’ refers to borrowing/lending of funds for period exceeding 14 days. Tbills Treasury bills are circulated by the primary as well as the secondary markets. The maturity periods for treasury bills are respectively 91,182, 364 days. The price with which treasury bills are issued comes separate from that of the face value, and the face value is achieved...
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...Financial Markets that facilitate the flow of funds from the suppliers of funds to firms or governments who need funds. Financial institutions serve as intermediaries by channeling the savings of individuals to firms that need funds. * Investors commonly finance the investments made by firms by purchasing debt securities or equity securities issued by those firms. In this assignment, functioning of Financial Markets would be explained with details of Capital and Money Markets’ Instruments.. Financial Markets; Types and Functions A financial market is a place for buying and selling of financial securities such as stocks and bonds. The financial markets can be divided into different subtypes; * Capital Markets * Stock Markets, that deal in issuance and subsequent trading of shares or common stock. * Bond Markets, that deal in issuance and subsequent trading of bonds. * Commodity Markets, that facilitate the trading of commodities. * Money Markets, that provide short term debt financing and investment. * Derivatives Markets, that provide instruments for the management of financial risk. * Futures Markets, that provide standardized forward contracts for trading products at some future date. * Insurance Markets, that facilitate the redistribution of various risks. * Foreign Exchange Markets, that facilitate the trading of foreign exchange. The capital and money markets are also classified into primary markets and secondary...
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...* A segment of the financial market in which financial instruments with high liquidity and very short maturities are traded. The money market is a mechanism that deals with the lending and borrowing of short term funds (less than one year).As per RBI definitions “ A market for short terms financial assets that are close substitute for money, facilitates the exchange of money in primary and secondary market”. * 2. It doesn’t actually deal in cash or money but deals with substitute of cash like trade bills, promissory notes & It includes all individual, institution and intermediaries.govt papers which can converted into cash without any loss at low transaction cost. * 3. In Money Market transaction can not take place formal like stock exchange, only through oral communication, relevant document and written communication transaction can be done. It deals with financial assets having a maturity period less than one year only. It is a market purely for short-terms funds or financial assets called near money. * 4. It is not a single homogeneous market, it comprises of several submarket like call money market, acceptance Transaction have to be conducted without the help of brokers. & The component of Money Market are the commercial banks, acceptance housesbill market. & NBFC (Non-banking financial companies). * To provide a reasonable access to users of short-term funds to meet their requirement quickly, adequately at reasonable cost. To enable the central...
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...TREASURY MANAGEMENT MONEY MARKET AND MONEY MARKETS INSTRUMENTS ABROAD BY:- VISHESH KUMAR 10BSP1181 MONEY MARKET AND MONEY MARKETS INSTRUMENTS ABROAD The money market is the arena in which financial institutions make available to a broad range of borrowers and investors the opportunity to buy and sell various forms of short-term securities which are highly liquid and are relatively low-risk debt instruments. The maturities of money market instruments range from one day to one year and are often less than 90 days. It comprises of the call and notice money market, repo market and the market for debt instruments. There is no physical "money market." Instead it is an informal network of banks and traders linked by telephones, fax machines, and computers. Banks financial institutions, companies and government are the key participants in the money market. The size of the transactions in the money market typically is large ($100,000 or more). At the center of this web is the central bank whose policies have an important bearing on the interest rates in the money markets. The money market provides an equilibrium mechanism for levelling out the demand and supply of short term funds and serves as a focal point for the intervention by the central bank (RBI in India) for influencing the liquidity and interest rates in the financial systems.The money market is important for businesses because it allows companies with a temporary cash surplus to invest in short-term securities;...
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...Question 1: If there is any increase in demand for a commodity, discuss in what circumstances the price may be expected to: (a) rice (b) remain constant (c) to tall a) The price of the commodity may rise if the product in question has no close substitute. An increased demand for Lux Soap, for example, will lead to a rise in price if there is no close substitute. b) The price may remain constant if there is no change in supply. c) Increase in demand for inferior goods will cause the price to fall. Question 2: Discuss fully the merits and demerits of mergers and acquisition of banks in the consolidation exercise of 25 banks in Nigeria. A. MERITS OF MERGERS & ACQUISITION IN THE BANKING INDUSTRY IN NIGERIA Improvement of Financial Capacity: The consolidation in the banking industry will bring about improved financial capacities of the banks. Thus, the banks would have larger capitals at their disposal to finance mega projects both in the long and in the short terms. Management of the Foreign Reserves by the mega banks would enable the bank finance high capital intensive projects: manufacturing, oil and gas, agriculture etc. Security of Depositors’ Funds: The availability of this capital also means that the banks are now stronger and customers’ deposits would become safe. The issue of distress in the banking industry would become a thing of the past if the banks are able to effectively manage the large pool of funds. Improvement of Technical...
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...The short-term debts and securities sold on the money markets— which are known as money market instruments—have maturities ranging from one day to one year and are extremely liquid. Treasury bills, federal agency notes, certificates of deposit (CDs), euro dollar deposits, commercial paper, bankers' acceptances, and repurchase agreements are examples of instruments. The suppliers of funds for money market instruments are institutions and individuals with a preference for the highest liquidity and the lowest risk. Treasury Bills Treasury bills (T-bills) are short-term notes issued by the U.S. government. They come in three different lengths to maturity: 90, 180, and 360 days. The two shorter types are auctioned on a weekly basis, while the annual types are auctioned monthly. T-bills can be purchased directly through the auctions or indirectly through the secondary market. Purchasers of T-bills at auction can enter a competitive bid (although this method entails a risk that the bills may not be made available at the bid price) or a noncompetitive bid. T-bills for noncompetitive bids are supplied at the average price of all successful competitive bids. Certificates of Deposit A certificate of deposit is a document evidencing a time deposit placed with a depository institution. The following information appears on the certificate: • the amount of the deposit, • the date on which it matures, • the interest rate and • the method under which the interest is calculated. Large...
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...Money Market Report Introduction SIBOR Forecast Strategies Role as Price Maker For Consumers For Bank to Bank (Corporate) Products and Services Operational Costs Source of Funds Risks/Obstacles Introduction Money market is like a place for large institutions and government to manage their short-term cash needs. However, individual investors have access to the market through a variety of different securities. Money market securities are essentially IOUs issued by governments, financial institutions and large corporations. These instruments are very liquid and considered extraordinarily safe. Because they are extremely conservative, money market securities offer significantly lower returns than most other securities. Eg. Treasury Bills. SIBOR SIBOR stands for Singapore Interbank Offered Rate and is a daily reference rate based on the interest rates at which banks offer to lend unsecured funds to other banks in the Singapore money market (interbank market). The chart below shows 3 month SIBOR for the past 3 years. [pic] (6 Month and 12 month SIBOR chart can be found in appendix page) 3 month SIBOR is a common benchmark rate used by the banks to adjust their deposit rates. By monitoring it, you can get an indication of where banks are headed next with their fixed deposit and savings account rates. As shown, overall interest rate (SIBOR) has been declining since the year 2006. When SIBOR goes down, consumers...
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...Islamic money market Based my reading, I founded that most of the stakeholder are seeking for the pure markets, which eliminate interest and other prohibited products. For this reason, Bank Negara Malaysia has made some effort of making the Islamic Money Market become one of the vital and important markets as compared to conventional money market. In addition, I mentioned that the conventional money market or Islamic money market both them have the same characteristics, purposes, and aims. However, there are some point that can differentiate between them is the instruments allowed in the Islamic money market are restricted to certain circumstances and conditions. The Islamic Money Market is one of the financial markets that all the activities are involved or carried out in a ways that do not conflict with the conscience of Muslims and the religion of Islam even Shari’ah principle. The all Instruments involved in the Islamic money market should be adhered and complied to principles established by the Shari'ah or the Islamic law as revealed in the Qur'an and Sunnah. In Islam, it is required that all products involve in the sale and buying (including the instruments in the financial markets) shall be from the ethical sectors or in other words, the profits gained shall not be in or from the prohibited activities. These prohibited activities include alcohol production, gambling, pornography, interest-base (riba) sector and should be free from the interest-based debt. The Islamic...
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...larger context, money operates as part of the financial system. Flows of money affect supplies of goods and services, as well as the ability of individuals and businesses to gain credit. The money supply also influences the market through price pressures; when the economy has a surplus of money along with a surplus of goods, inflation, or rising prices, can result. This means that money's worth is always relative to the larger economy. A $100 bill means something very different today than it did 50 years ago, buying less than it once did. Money helps markets to exist by playing an exchange role. Before paper bills (and before that, coins made of gold and other precious metals) became prevalent in society, the only medium of exchange was through barter, or trade. This meant that traders had to bring goods to market, to exchange for other goods. Although the medium of exchange could sometimes be agreed upon, a lack of a uniform medium exacerbated difficulties in markets. For example, if I had goats to trade and you had apples, we could only trade with each other if you needed goats and I needed apples. Money helps to facilitate market activity, by providing a uniform medium of exchange: goats and apples can both be exchanged for dollars. Labor can also be paid in money rather than in goods. Money received from labor can be exchanged for goods and services. The exchange role of money works only because people recognize and agree upon the value of money. Prior to the advent...
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... several countries experienced tragic situations, which were caused by natural disasters and others due to civil wars because of the political ill power: 1- Egypt: the country experienced its first real international crisis and the biggest disaster, pushing the Egyptian regime out of power, which caused many people dead and affected the foreign workers in the country to go back to their countries. 2- Revolution in Libya: with the same aim of pushing their leader out of power. Libya is known to the world and Africa as one the strongest oil supplier to the world. Members of the EU decided to use a universal currency: the euro. This allowed countries such as Greece, Portugal, Italy, Ireland, and Spain to borrow money at the same interest rates as Germany. Inflation rates for each country were different; inflation is higher for countries like Greece and Italy than for Germany. Moreover, the inflation rate for these countries was higher than the interest rate charged on their loans. Therefore, borrowing at the same rate as Germany essentially meant that they were being paid to borrow. Because it was such a good deal to take loans, both the citizens and governments of these countries started to accumulate enormous amounts of debt. To...
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...not whether inflation will ruin a nation, but how much inflation will ruin a nation. 0.00001% is still an inflationary number as is 1,000,000%. So it is not just the presence of inflation that will undermine a country’s financial system, but rather to what degree inflation impacts a country’s financial system. The original statement attributed to Vladimir Lenin that prompted this paper cannot be taken as a truism but it certainly fits in the Socialist propaganda. Will Inflation Undermine a Country’s Financial System and eventually ruin the Nation? It is easier to accept George Bernard Shaw’s statement: The lack of money is the root of all evil,” (Lawrence S. Ritter, 2009) than it is Lenin’s supposition that inflation, in a sense, is the root of all evil for a nation. To be certain, though, they are linked together. Inflation can lead to a lack of money and if it is bad enough, it can certainly be the ruin of a nation, or perhaps more succinctly: the ruin of a government. Inflation: how much is too much? This is a very debatable matter of how much is too much. To the uneducated masses, any is too much, and politicians pray on this ignorance for their personal gain. To the greedy there can never be too much. But the truth lies somewhere in between the ignorant and the greedy’s position on this subject. Some inflation is good, it is very good actually. How much is “good” is a point that even the world’s best economic minds cannot agree on and I don’t think we...
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...The Stock Market The stock market is a market where several companies or individuals buy and sell shares to gain profit. Each country has one building in which the stock market occurs. For example, Ghana's stock exchange is called the Ghana Stock Exchange. The first stock exchange was the New York Stock Exchange located at 11 Wall Street. It is the world’s largest stock exchange and whatever happens to it greatly affects the rest of the world. In 1929, the Wall Street Crash occurred, crucially affecting the rest of the world’s huge powers. Several countries suffered, losing money, food and other needs in the huge ripple effect. There are several ways to determine the prices of these shares. They are interest rates, inflation, oil and energy prices and similar factors. All these factors are very hard to predict. The prices of...
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...economy that does not experience growth on sustained basis is likely to have a very passive financial sector as there are no incentives for investment. Through the process of growth, financial system offers a wide range of portfolio options for savers and issuable instruments for investors, a function often referred to as financial intermediation (Oke, 2000). The Nigerian financial system comprises of various institutions, markets and operations that are in the business of providing financial services. These institutions can be broadly categorized into money and capital markets. While money market is a market in which short term financial instruments are traded, the capital market on the other hand deals with long term transactions. The major players in the money market are the banks and discount houses. The intermediation role of banks ensures the mobilization of idle funds from the surplus units to the deficit sector. Since independence, the financial sector has been on the increase. Today, Nigeria has about twenty strong banks and a well-functioning stock market. Other financial institutions like insurance companies, finance companies are growing. Also included are specialized...
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