...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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...Prepare a glossary for the terms below: Financial market - A financial market is a market in which people trade financial securities, commodities, and other fungible items of value at low transaction costs and at prices that reflect supply and demand. Securities include stocks and bonds, and commodities include precious metals or agricultural goods. Financial instruments - Financial instruments are tradable assets of any kind. They can be cash, evidence of an ownership interest in an entity, or a contractual right to receive or deliver cash or another financial instrument. Financial intermediaries - A financial intermediary is a financial institution such as bank, building society, insurance company, investment bank or pension fund. A financial intermediary offers a service to help an individual/ firm to save or borrow money. Shares/ stocks – Shares/stocks is a share in the ownership of a company. It represents a claim on the company's assets and earnings. As you acquire more shares, your ownership stake in the company becomes greater. Bonds - A bond is a debt investment in which an investor loans money to an entity which borrows the funds for a defined period of time at a variable or fixed interest rate. Bonds are used by companies, municipalities, states and sovereign governments to raise money and finance a variety of projects and activities. Owners of bonds are debt holders, or creditors, of the issuer. Treasury bills - A short-dated government security, yielding no...
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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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...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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...Chapter 1: Introduction True/False 1. Primary markets are markets where users of funds raise cash by selling securities to funds suppliers. Answer: True Level: Easy 2. Secondary markets are markets used by corporations to raise cash by issuing securities for a short time period. Answer: False Level: Easy 3. In a private placement the issuer typically sells the entire issue to one or only a few institutional buyers. Answer: True Level: Easy 4. The NYSE is an example of a secondary market. Answer: True Level: Easy 5. Privately placed securities are usually sold to one or more investment bankers and then resold to the general public. Answer: False Level: Easy 6. Money markets are the markets for securities with an original maturity of 1 year or less. Answer: True Level: Easy 7. Eurodollar bonds are dollar denominated bonds issued outside the United States. Answer: True Level: Easy 8. Financial intermediaries such as banks typically have assets that are riskier than their liabilities. Answer: True Level: Easy 9. Spinning is the process of allocating shares in a ‘hot’ IPO to certain favored clients of investment banking firms in exchange for receiving additional investment banking business. Answer: True Level: Easy 10. Many stock research analysts of investment banking firms have been accused of issuing overly optimistic stock research reports on firms in order to help support the investment...
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...Financial Institutions, Instruments and Markets—7th edition Instructor’s Resource Manual Christopher Viney and Peter Phillips Chapter 1 A modern financial system Learning objective 1.1: explain the functions of a modern financial system • The introduction of money and the development of local markets to trade goods were the genesis of the financial system of today. • Money is a medium of exchange that facilitates transactions for goods and services. • With wealth being accumulated in the form of money, specialised markets developed to enable the efficient transfer of funds from savers (surplus entities) to users of funds (deficit entities). • A modern financial system comprises financial institutions, instruments and markets that provide a wide range of financial products and services. • A financial system encourages accumulated savings which are then available for investment within an economy. • Financial instruments incorporate attributes of risk, return (yield), liquidity and time–pattern of cash flows. Savers are able to satisfy their own personal preferences by choosing various combinations of these attributes. • By encouraging savings, and allocating savings to the most efficient users, the financial system has an important role to play in the economic development and growth of a country. Learning objective 1.2: categorise the main types of financial institutions, being depository financial institutions, investment banks and merchant banks,...
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...FINANCIAL MARKETS FIN 4040A 1. A financial market is the market for capital, a significant factor of production. The obligations created are in form of financial assets or financial instruments severally called securities. These assets are intangible and offer promises and claims by issuers and holders. A classification of the financial markets will greatly improve our mental constructs. CLASSIFICATION OF FINANCIAL MARKETS | | Type of classification |Specific operational terms | | |1 |Nature of claim |DEBT MARKETS | | | | | | | | | |EQUITY MARKETS | | |2 | |MONEY MARKET | | | | | | | | |Maturity of claim |CAPITAL MARKET | | |3 | ...
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...Bank); (d) 2 large government- owned insurance companies (life and general) and 60 private owned (17 life and 43 general) insurance companies; (e) 2 stock exchanges and, (f) some co-operative banks. Besides, a good number of semi-formal micro finance institutions (MFIs) also are operating in Bangladesh. Structure of Financial System: The main constituents of financial system are : i) Financial Institutions ii) Financial Instruments, and iii) Financial Markets. Financial Institutions The modern name of Financial Institution is Financial Intermediary (FI), because it mediates or stand between ultimate borrowers and ultimate lenders and helps transfer funds from one to another. The Financial system helps production, capital-accumulation and growth by i) encouraging savings and ii) allocating them among the alternative uses and users. Financial Instruments Financial Instruments are of two types: i) Primary (or Direct) ii) Secondary (or Indirect) ------------------------------------------------- Financial markets Financial markets facilitate the flow...
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...Capital Market and Money Markets A financial market that works as a conduit for demand and supply of debt and equity capital. It channels the money provided by savers and depository institutions like banks, credit unions, and insurance companies among others, to borrowers and investees through a variety of financial instruments like bonds, notes, and shares that are referred to as securities. A capital market is not a compact unit, but a highly decentralized system made up of three major parts: stock market, bond market, and money market. It also works as an exchange for trading existing claims on capital in the form of shares. Essentially, capital is wealth, usually in the form of money or property. Capital markets exist when two groups interact: those who are seeking capital and those who have capital to provide. The capital seekers are the businesses and governments (sometimes individuals) who want to finance their projects and enterprises by borrowing or selling equity stakes. The capital providers are the people and institutions who are willing to lend or buy, expecting to realize a profit. By participating in the stock and bond markets, which are the pillars of the capital markets, you commit your capital by investing in the equity or debt of issuers that you believe have a viable plan for using that capital. Because so many investors participate in the capital markets, they make it possible for enterprises to raise substantial sums enough to carry out much larger projects...
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...the deficit units. It is a framework for describing set of markets, organisations, and individuals that engage in the transaction of financial instruments (securities), as well as regulatory institutions. The basic role of Financial System is essentially channelling of funds within the different units of the economy – from surplus units to deficit units for productive purposes. 1.1 COMPONENTS OF FINANCIAL SYSTEM: There are mainly three components of financial system. These are: I. Financial Market II. Financial Intermediaries III. Financial Instrument I. FINANCIAL MARKET Financial markets are a mechanism enabling participants to deal in financial claims. The markets also provide a facility in which their demands and requirements interact to set a price for such claims. Financial markets perform the essential function of channeling funds from economic players that have saved surplus funds to those that have a shortage of funds. At any point in time in an economy, there are individuals or organizations with excess amounts of funds, and others with a lack of funds they need for example to consume or to invest. Exchange between these two groups of agents is settled in financial markets. The first group is commonly referred to as lenders. The second group is commonly referred to as the borrowers of funds. * There exist two different forms of exchange in financial markets. The first one is direct finance, in which lenders and borrowers...
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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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...The Money Markets A. The Money Markets Defined B. The Purpose of Money Markets C. Who Participates in Money Markets D. Money Market Instruments The Money Markets Defined: The term “money market” is a misnomer. Money (currency) is not actually traded in the money markets. The securities in the money market are short term with high liquidity, therefore they are close to being money. 1) Money market securities are usually sold in large denominations ($1,000,000 or more). 2) They have low default risk 3)They mature in one year or less from their issue date. The Purpose of Money Markets: Investors in Money Market: 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 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.Who Participates in Money Markets: Money Market Instruments: 1.Treasury Bills 2. Federal Funds 3.Repurchase Agreements 4.Negotiable 5.Commercial Pape.1.T-bills have 91-day, 182-day or 12 month maturities.T-bills are auctioned to the dealers every hursday.The Treasury may accept both competitive and noncompetitive bids,2.Short-term funds transferred (loaned or borrowed) between financial institutions, usually for a period of one day.Used by banks to meet short-term needs to meet reserve requirements3.These work similar to the market for...
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...financial instruments issued in a financial system • The flow of funds between savers / borrowers • Distinguish between various types of financial markets according to function • Appreciate the importance of globalisation • Understand the effects and consequences of a financial crisis on a financial system and economy 1-3 1 Functions of a Financial System • Money – Acts as medium of exchange – Solves the divisibility problem, i.e. where medium of exchange does not represent equal value for the p q parties to the transaction – Facilitates saving – Represents a store of wealth 1-4 Functions of a Financial System (cont.) • Role of markets – Facilitate exchange of goods and services by bringing opposite parties together establishing rates of exchange, i.e. prices • Financial Markets consist of: • Surplus units – Savers of funds available for lending • Deficit units – Borrowers of funds for capital investment and consumption 1-5 1.1 Functions of a Financial System (cont.) 1-6 2 Functions of a Financial System (cont.) • Financial instrument – Issued by a party raising funds, acknowledging a financial commitment and entitling the holder to specified future cash flows • Double coincidence of wants satisfied – A transaction between two parties that meets their mutual needs 1-7 Functions of a Financial System (cont.) • Flow of funds – Movement of funds through the financial system between savers and borrowers giving rise to financial instruments • Financial...
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...OF FINANCIAL MARKET IN BANGLADESH 1. INTRODUCTION The financial system in South Asia is dominated by the banking system in terms of assets, or finance of private households and domestic companies; major financial institutions are banks. This is why financial instrument of the financial market of Bangladesh are bank dominated. But a developed and diversified financial system with a sound debt and equity market enhances risk pooling and risk sharing opportunities for investors and borrowers. This also provides a safety cushion for banks as it helps move a crisis outside the banking system making it easier for the government to stand back. Bond financing reduces macroeconomic vulnerability to shocks and systemic risk through diversification of credit and investment risks. A mature bond market helps develop the derivatives market thereby facilitating hedging mechanisms and enabling greater diversification of risks by participants. Also, the wide variety of instruments available in a developed debt market results in gains to savers and borrowers. Besides, the coexistence of a developed domestic bond market and banking system helps each to act as a backstop for the other. In Bangladesh, an efficient bond market can play a critical role in supplementing the banking system to meet the requirements of the corporate sector for long-term capital investment and asset creation. It can provide a stable source of finance when the equity market is volatile. The bond market in Bangladesh...
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...Financial Markets in Bangladesh. A financial market is a market in which people and entities can trade financial securities, commodities, and other fungible items of value at low transaction costs and at prices that reflect supply and demand. Securities include stocks and bonds, and commodities include precious metals or agricultural goods. The financial market in Bangladesh is mainly of following types: 1. Money Market: 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 deposit (CDs), banker’s acceptances, Treasury bills, commercial paper, municipal notes, federal funds and repurchase agreements (repos). There are currently 15 primary dealers (12 banks and 3 FIs) in Bangladesh. The only active secondary market is overnight call money market which is participated by the scheduled banks and FIs. The money market in Bangladesh is regulated by Bangladesh Bank (BB), the Central Bank of Bangladesh. 2. Capital market: A market in which individuals and institutions trade financial securities. Organizations/institutions in the public and private sectors also often sell securities on the capital markets in order to raise funds. Thus, this type of market is composed of both the primary and secondary markets. The...
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