2. Money Market-
Money market means market where money or its
equivalent can be traded.
Money is synonym of liquidity. Money market consists of
financial institutions and dealers in money or credit who
wish to generate liquidity. It is better known as a place
where large institutions and government manage their
short term cash needs. For generation of liquidity, short
term borrowing and lending is done by these financial
institutions and dealers.
Hence, money market is a market where short term
obligations such as treasury bills, commercial papers and
banker’s acceptances are bought and sold.
3. Money Market instruments
Investment in money market is done through
money market instruments.
Money market instrument meets short term
requirements of the borrowers and provides liquidity
to the lenders. Common Money Market Instruments
are as follows:
T reasury Bills
C ertificate of Deposit
B anker’s Acceptance
4. Greek Money Market Instruments
Money market papers are securities with a short
maturity. Classical money market instruments in
Greece are certificates of deposit, medium term notes
and term deposits.
Of particular importance for short-term investments
abroad are US money market instruments or
paper, usually with terms of 3 to 6 months (Treasury
bills, banker’s acceptances, commercial paper, finance
paper and certificates of deposit issued in New York, as
well as London certificates of deposit).
5. Greek short-term debt instruments account for EUR
3.8bn, which represents 0.05% of the total amount of
outstanding short-term debt in the Eurozone (EUR
798.2bn – July 2003).
Greece is therefore the second smallest market for
such instruments within the Eurozone.
6. Greek Government Debt
Since becoming the latest country to join the Euro, the
Greek bond market developed significantly. The demand
for Greek Government paper has increased drastically, thus
the primary market for government paper was marked by
an increase in securities issues.
Factors such as the substantial increase in the public
sector’s gross borrowing requirement and the upgrading of
the country’s credit rating contributed to these
developments.
The nominal value of all types of government paper issued
in 2002 rose to €32.1 billion, from €24.2 billion in 2001 and
€26.8 billion in 2000
7. Treasury Bills
Treasury Bills, one of the safest money market
instruments, are short term borrowing instruments of the
Central Government of the country issued through the
Central Bank .
They are zero risk instruments, and hence the returns are
not so attractive. It is available both in primary market as
well as secondary market. It is a promise to pay a said sum
after a specified period.
Greek Treasury Bills are issued as discount papers with a
maturity of 13, 26 and 52 Weeks in regular auction
announced by the Bank of Greece according to the auction
calendar.
8. Government Bonds
A government bond is a bond issued by a national
government, generally promising to pay a certain
amount (the face value) on a certain date, as well as
periodic interest payments. Bonds are debt
investments whereby an investor loans a certain
amount of money, for a certain amount of time, with a
certain interest rate, to a company or country.
Greek Government Bonds are regularly issued or
tapped as either fixed of floating rate instruments
according to the quarterly announced auction
schedule.
9. Since the year 2003 the Greek Ministry of Finance has
also issued an inflation-index linked bond with the
maturity of 22 years for the first time, where the
annual coupon payment is linked to harmonized
European inflation index.
Fixed Coupon instruments are issued as 3, 5, 7, 10, 15 or
20 Year paper.
Floating Rate Issues
The rate of the floating Coupon is based on the yield
of the actual 6 or 12 Month Greek Treasury
Bills, depending on the chosen reference T-Bill plus
the quoted margin. Therefore the fixing of the
coupons is annual or semi-annual.
10. Mortgage Bonds
A mortgage bond is a bond backed by a pool of mortgages
on a real estate asset such as a house. More generally, bonds
which are secured by the pledge of specific assets are called
mortgage bonds.
Even though the legal framework for issuing mortgage
bonds meets the requirements of the European Union, the
primary and secondary market for mortgage bonds in
Greece are hardly developed.
High Interest rates in the 90’s and the tax situation for non-
government issuers are the main reasons why mortgage
bonds do not play a significant role on the Greek capital
market.
11. Euro Certificate of Deposit
Instrument for the notaries recording of time deposits.
They are issued, principally by banks, in high face
values with different terms and are redeemed at face
value upon maturity.
Their terms are normally 3 to 12 months, but may be as
much as 5 years. In addition to fixed-interest
CDs, there are CDs attracting variable interest rates as
well.
12. Other Money Market
Instruments in Greece
European Term Deposits- Savings account or
certificate of deposit held in a financial
institution, usually a bank, for a fixed term or with the
understanding that the customer can withdraw only by
giving advanced notice.
European Medium Term Notes- Debt instrument
with medium maturity issued on the Euro money
market.
13. Repos-The Repo or the repurchase agreement is used by
the government security holder when he sells the security
to a lender and promises to repurchase from him overnight.
Hence the Repos have terms raging from 1 night to 30 days.
They are very safe due to government backing.
Floating Rate Notes (FRNs)-Debt instrument with an
initial maturity longer than one year and shorter than 10
years the payment of which depends on a FRN depending
on short-term interest rates.
14. Banker's Acceptance- It is a short-term credit
investment. It is guaranteed by a bank to make
payments. The Banker's Acceptance is traded in
the Secondary market. The banker's acceptance is
mostly used to finance exports, imports and other
transactions in goods. The banker's acceptance
need not be held till the maturity date but the
holder has the option to sell it off in the secondary
market whenever he finds it suitable.
