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MARKET
Chapter 6 GROUP 1 - Presentation
BI THANH XUN
TRN LAN NHI
NGUYN QUNH TRANG
NGUYN TH LAN VY
GROUPS MEMBER
Content
Money Market Securities
Institutional Use of Money
Valuation of Money Market
Securities
Valuation of Money Markets
Chapter Objectives
1.
MONEY
MARKET
SECURITIES
Definition:
PART 1
PART 1
PART 1
Existence of sub-brokers
Sufficient resources
PART 1
Existence of sub-brokers
PART 1
Commercial paper
Repurchase agreements
Federal funds
Bankers acceptances
PART 1
PART 1
PART 1
PART 1
PART 1
PART 1
PART 1
PART 1
COMMERCIAL PAPER
Short-term debt instrument issued by wellknown, creditworthy firms and is typically
unsecured.
Normally issued to provide liquidity or to
finance a firms investment in inventory and
accounts receivable.
The minimum denomination of commercial
paper is usually $100,000.
Maturities are normally between 20 and 45
days but can be as short as 1 day or as long as
PART
1
MONEY MARKET SECURITIES
270 days.
COMMERCIAL PAPER
1. Ratings
.Assigned by rating agencies such as Moodys
Investors Service, Standard & Poors
Corporation, and Fitch Investor Service.
.Serves as an indicator of the potential risk of
default.
PART 1
COMMERCIAL PAPER
2. Credit Risk during the Credit Crisis
.Historically the percentage of issues that have
defaulted is very low.
.During the credit crisis in 2008, Lehman
Brothers (a large securities firm) failed.
.This made investors more cautious before
purchasing securities
PART 1
COMMERCIAL PAPER
3. Placement
.Firms place commercial paper directly with
investors or rely on commercial paper dealers
to sell their commercial paper.
4. Backing Commercial Paper
.Issuers of commercial paper typically maintain
backup lines of credit.
PART 1
COMMERCIAL PAPER
5. Estimating the Yield
.Commercial paper does not pay interest and is
priced at a discount from par value.
.The yield on commercial paper is higher than
the yield on a T-bill with the same maturity
because of credit risk and less liquidity.
PART 1
COMMERCIAL PAPER
6. Commercial Paper Yield Curve
.Represents the yield offered on commercial
paper at various maturities.
.The same factors that affect the Treasury yield
curve affect the commercial paper yield curve,
but they are applied to very short-term
horizons.
PART 1
NEGOTIABLE CERTIFICATES OF
DEPOSIT
PART 1
NEGOTIABLE CERTIFICATES OF
DEPOSIT
1. Placement
.Some issuers place their NCDs directly; others
use a correspondent institution that specializes
in placing NCDs.
2. Premium
.Offer a premium above the T-bill yield in order
to compensate for less liquidity and safety.
PART 1
NEGOTIABLE CERTIFICATES OF
DEPOSIT
3. Yield
.Provide a return in the form of interest along
with the difference between the price at which
the NCD is redeemed (or sold in the secondary
market) and the purchase price.
PART 1
REPURCHASE AGREEMENTS
With a repurchase agreement (repo), one party
sells securities to another with an agreement
to repurchase the securities at a specified date
and price.
A reverse repo is the purchase of securities by
one party with an agreement to sell them.
A repurchase agreement (or repo) represents a
loan backed by the securities.
PART 1
REPURCHASE AGREEMENTS
Financial institutions often participate in repos.
The size of the repo market is about $4.5
trillion. Transaction amounts are usually for
$10 million or more.
The most common maturities are from 1 day to
15 days and for one, three, and six months.
PART 1
REPURCHASE AGREEMENTS
1. Placement
. Negotiated through a telecommunications
network.
. Dealers and repo brokers act as financial
intermediaries to create repos for firms with
deficient or excess funds, receiving a
commission for their services.
PART 1
REPURCHASE AGREEMENTS
2. Impact of the Credit Crisis
. Many financial institutions that relied on the
market for funding were not able to obtain
funds.
. Investors became more concerned about the
securities that were posted as collateral
3. Estimating the Yield
PART 1
FEDERAL FUNDS
PART 1
FEDERAL FUNDS
PART 1
BANKERS ACCEPTANCES
PART 1
PART 1
2.
INSTITUTIONAL
USE OF MONEY
PART 2
PART 2
PART 2
PART 2
3.
VALUATION OF
MONEY
MARKET
SECURITIES
Pm = PV (present value)
PART 3
PART 3
Including:
employment
GDP
retail sales
industrial production
consumer confidence
PART 3
Indicators of Inflation:
CPI (consumer price index)
PPI (producer price index)
PART 3
1.
1.
PART 3
2.
2.
PART 3
2.
PART 3
4.
GLOBALIZATIO
N OF MONEY
MARKET
PART 4
GLOBALIZATION OF MONEY
MARKET
PART 4
GLOBALIZATION OF MONEY
MARKET
PART 4
GLOBALIZATION OF MONEY
MARKET
1.
EURODOLLAR SECURITIES
PART 4
1.
EURODOLLAR SECURITIES
Eurodollar CDs
Eurodollar certificates of deposit are large
dollar-denominated deposits (such as $1
million) accepted by banks in Europe.
Is used as a medium of exchange in
international trade and investment
transactions (payment for exports, invest in
Eurodollar CDs)
PART 4
1.
EURODOLLAR SECURITIES
Eurodollar CDs
Eurodollar CDs are not subject to reserve
requirements.
Eurodollar floating-rate CDs have been used
in recent years.
PART 4
1.
EURODOLLAR SECURITIES
Euronotes
are short-term securities issued in bearer form,
with common maturities of 1, 3 and 6 months.
Typical investors: Eurobanks.
are sometime underwritten in a manner that
guarantees the issuer a specific price
PART 4
1.
EURODOLLAR SECURITIES
Euro-Commercial Paper
is issued without the backing of a banking
syndicate.
Maturities can be tailored to satisfy investors.
Dealers that place commercial paper have
created a secondary market.
Some European companies that want shortterm funding in dollars can more easily place
their paper here, where they have a household
name.
PART 4
2.
INTERNATIONAL INTERBANK
MARKET
3.
PERFORMANCE OF FOREIGN
MMS
PART 4
3.
PERFORMANCE OF FOREIGN
MMS
3.
PERFORMANCE OF FOREIGN
MMS
PART 4
SUMMAR
Y