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Introduction to Money Market



        Presented By,
        Muhammad Owais Atta Siddiqui
Financial Markets:

            FINANCIAL
             MARKETS



        MONEY        CAPITAL
        MARKET       MARKET
Investment and Risk Characteristics:
Term: Mostly Short Term i.e. less than a year
Income: Low
Security: Depends upon the issuer
Marketability: Good
Volatility: Low since the term is short
Inflation: Low impact of inflation as term is short
Expected Return: Negotiable/Equivalent to bank deposit
Currency: Available in different currencies
The Six Horses: Why, What, Who, Which,
How and Where ?

β€’   Why: The Need
β€’   What: The Definition
β€’   Who: The Players
β€’   Which and How: The Product and Process
β€’   Where: The Resources
Why: The Need
The Need:
β€’   Need for short term funds by Banks.
β€’   Outlet for deploying funds on short term basis .
β€’   Optimize the yield on temporary surplus funds
β€’   Regulate the liquidity and interest rates in the
    conduct of monetary policy to achieve the
    broad objective of price stability, efficient
    allocation of credit and a stable foreign
    exchange market
What: The Definition
The Definition:
β€’ Money Market is "the centre for dealings,
  mainly short-term character, in money assets.
β€’ It meets the short-term requirements of
  borrower and provides liquidity or cash to the
  lenders.
β€’ It is the place where short-term surplus
  investible funds at the disposal of financial and
  other institutions and individuals are bid by
  borrowers, again comprising Institutions,
  individuals and also the Government itself"
Continued..
β€’ Money market refers to the market for short
  term assets that are close substitutes of money,
  usually with maturities of less than a year.
β€’ A well functioning money market provides a
  relatively safe and steady income-yielding
  avenue..
β€’ Allows the investor institutions to optimize the
  yield on temporary surplus funds
Who: The Players
The Players:
β€’ Central Bank (State Bank of Pakistan).
β€’ Commercial Banks, Co-operative Banks and
  Primary Dealers are allowed to borrow and
  lend.
β€’ Specified Pakistani Financial Institutions,
  Mutual Funds, and certain specified entities are
  allowed to access to Call/Notice money market
  only as lenders.
β€’ Individuals, firms, companies, corporate
  bodies, trusts and institutions can purchase the
  treasury bills, CPs and CDs.
Which and How:
The Products and Process
The Product and Process:

β€’   Treasury Bills
β€’   Certificate of Deposit
β€’   Commercial Paper
β€’   Local Authority Bills
β€’   Bills of Exchange
β€’   Call Deposit
β€’   Term Deposit
β€’   Floating Rate Notes
Treasury Bills:
β€’ Treasury bills, commonly referred to as T-Bills are
  issued by Government of Pakistan against their short
  term borrowing requirements.
β€’ T-Bills are the most marketable money market security
  due to its simplicity.
β€’ Their standard maturity periods are 4, 13, 26 or 52
  weeks(1, 3, 6, 12 months)
β€’ One of the money market instruments that are
  affordable to the individual investors.
β€’ T-Bills are considered to be the safest investment.
β€’ They are considered to be risk free as they are backed
  by the government.
Certificate of Deposits:

β€’ A Certificate of Deposit (CD) is a time deposit with
  bank. CDs are generally issued by commercial banks
  but the can be bought through brokerages.

β€’ They bear a specific maturity date (from three months
  to five years, a specified interest rate and can be issued
  in any denomination.

β€’ CDs offer a slightly higher yield than T-Bills because
  of the slightly higher default risk for bank
Commercial Paper:
β€’ Commercial paper is an unsecured, short term loan
  issued by a corporation, typically for financing
  Accounts Receivables and Inventories.

β€’ Maturities on Commercial Papers are no longer than
  nine months, with maturities of between on and two
  months being the average.

β€’ Commercial Paper is a very safe investment because
  the financial situation of a company can easily be
  predicted over a few months.
Where: The Resources
The Resources:
β€’ SBP’s site:
  http://www.sbp.org.pk/

β€’   Investopedia:
    http://www.investopedia.com/university/moneymarket/

β€’ Pakistan Economist’s site:
  http://www.pakistaneconomist.com/database2/
Questions and Comments

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Money market by muhammad owais atta siddiqui

  • 1. Introduction to Money Market Presented By, Muhammad Owais Atta Siddiqui
  • 2. Financial Markets: FINANCIAL MARKETS MONEY CAPITAL MARKET MARKET
  • 3. Investment and Risk Characteristics: Term: Mostly Short Term i.e. less than a year Income: Low Security: Depends upon the issuer Marketability: Good Volatility: Low since the term is short Inflation: Low impact of inflation as term is short Expected Return: Negotiable/Equivalent to bank deposit Currency: Available in different currencies
  • 4. The Six Horses: Why, What, Who, Which, How and Where ? β€’ Why: The Need β€’ What: The Definition β€’ Who: The Players β€’ Which and How: The Product and Process β€’ Where: The Resources
  • 6. The Need: β€’ Need for short term funds by Banks. β€’ Outlet for deploying funds on short term basis . β€’ Optimize the yield on temporary surplus funds β€’ Regulate the liquidity and interest rates in the conduct of monetary policy to achieve the broad objective of price stability, efficient allocation of credit and a stable foreign exchange market
  • 8. The Definition: β€’ Money Market is "the centre for dealings, mainly short-term character, in money assets. β€’ It meets the short-term requirements of borrower and provides liquidity or cash to the lenders. β€’ It is the place where short-term surplus investible funds at the disposal of financial and other institutions and individuals are bid by borrowers, again comprising Institutions, individuals and also the Government itself"
  • 9. Continued.. β€’ Money market refers to the market for short term assets that are close substitutes of money, usually with maturities of less than a year. β€’ A well functioning money market provides a relatively safe and steady income-yielding avenue.. β€’ Allows the investor institutions to optimize the yield on temporary surplus funds
  • 11. The Players: β€’ Central Bank (State Bank of Pakistan). β€’ Commercial Banks, Co-operative Banks and Primary Dealers are allowed to borrow and lend. β€’ Specified Pakistani Financial Institutions, Mutual Funds, and certain specified entities are allowed to access to Call/Notice money market only as lenders. β€’ Individuals, firms, companies, corporate bodies, trusts and institutions can purchase the treasury bills, CPs and CDs.
  • 12. Which and How: The Products and Process
  • 13. The Product and Process: β€’ Treasury Bills β€’ Certificate of Deposit β€’ Commercial Paper β€’ Local Authority Bills β€’ Bills of Exchange β€’ Call Deposit β€’ Term Deposit β€’ Floating Rate Notes
  • 14. Treasury Bills: β€’ Treasury bills, commonly referred to as T-Bills are issued by Government of Pakistan against their short term borrowing requirements. β€’ T-Bills are the most marketable money market security due to its simplicity. β€’ Their standard maturity periods are 4, 13, 26 or 52 weeks(1, 3, 6, 12 months) β€’ One of the money market instruments that are affordable to the individual investors. β€’ T-Bills are considered to be the safest investment. β€’ They are considered to be risk free as they are backed by the government.
  • 15. Certificate of Deposits: β€’ A Certificate of Deposit (CD) is a time deposit with bank. CDs are generally issued by commercial banks but the can be bought through brokerages. β€’ They bear a specific maturity date (from three months to five years, a specified interest rate and can be issued in any denomination. β€’ CDs offer a slightly higher yield than T-Bills because of the slightly higher default risk for bank
  • 16. Commercial Paper: β€’ Commercial paper is an unsecured, short term loan issued by a corporation, typically for financing Accounts Receivables and Inventories. β€’ Maturities on Commercial Papers are no longer than nine months, with maturities of between on and two months being the average. β€’ Commercial Paper is a very safe investment because the financial situation of a company can easily be predicted over a few months.
  • 18. The Resources: β€’ SBP’s site: http://www.sbp.org.pk/ β€’ Investopedia: http://www.investopedia.com/university/moneymarket/ β€’ Pakistan Economist’s site: http://www.pakistaneconomist.com/database2/