Money Market论文.doc

金融市场与机构 题目：Money Market 姓名：胡金义 学号：2014132127 学院：外国语学院 目录1. Money Markets Defined32. Functions of the money market53. Participants74. Common money market instruments 9 Money MarketAbstract: As money became a commodity, the money market has 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 money markets is done over the counter and is wholesale.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.Key words:money market；trading；funding . The money market plays a crucial role in financing both internal and international trade. Together with the capital market, they constitute the core and main body of one countrys financial market. Chinas money market witnesses a rapid growth in 1998. Since then, Chinas money market keeps flourishing. To some extent, the money market in China is a consequence of the initiation of the socialist market economy and also it is the natural result of the reform in Chinas market economy. With more than one decades development, the money market in China has been shaped with a certain scope and has formed its own framework and submarkets including the interbank lending and borrowing market, the repurchase market, the bond market and the bill market. Now, Chinas money market performs significance in Chinas financial market and has a major effect on monetary policies.However, the liquidity tightness that happened from June, 2013 sounds the alarm to us that Chinas money market is still immature. This event reflects a bunch of deficiencies in Chinas money market and makes people feel compelled to reassess the existing mode of Chinas money market and seek for solutions towards the problems.Actually, the market showed signs of tightness since late May, 2013, while it exploded on June 20, when the Shanghai Interbank Offered Rate or Shibor increased to 13.44 percent, exceeding even the highs posted during the financial crisis in 2008 and setting a new record high for the decade. At the same time, The Economic Observer released an article called Chinas Money Market Meltdown, saying that, “A temporary shortage of capital swept through Chinas financial markets and most financial institutions rushed the market to locate funds. Investment managers, financial analysts and even the administrators charged with regulating the system were all asking the same question:Do you still have money?”, which pointed out the severity of this incident.This incident was mainly due to the excessive faith in short-term inter-bank loans and excessive lending that surpassed the limits set by regulators. Banks should be able to solve the liquidity problem by themselves, instead of relying on the Central Bank or other large banks. While in fact, some banks have been overdependent on large scale lending from other banks on the wholesale market but there were serious problems in terms of a mismatching of maturity, which brought a lot of pressure on the management liquidity. Actually, the example above is just a miniature of current problems in the money market. Now the biggest problem is the unbalanced development existing within the money market and between the money market and the capital market. In a deep sense, the current liquidity tightness is caused by it. 1.Money Markets DefinedMoney market securities are usually sold in large denominations ($1,000,000 or more).They have low default risk and mature in one year or less from their issue date.Money markets are the global financial markets for borrowing and lending in the short term. On these markets, Treasury Bills are bought and sold, as are commercial deposits and bankers acceptances. Financial institutions and those who deal in money are the main participants in this market when they wish to borrow or lend money. They can engage in these dealings for short-term periods of up to thirteen months. Many people do not realize that banks borrow from each other using this type of market. A segment of the financial market in which financial instruments with high liquidity and very short maturities are traded. A typical money market instrument is worth $1 million or more. These instruments have maturities ranging from one day to one year (the average is less than three months) and are extremely liquid. Consequently, they are considered to be near-cash equivalentsindeed, even part of themoney supplyby some definitionshence the name money market instruments. For the lender/investor, the market provides a modest rate of return on funds that are not being used presently, but cannot be tied up in less liquid or less certain investments. For the borrower, the money market enables rapid and relatively inexpensive acquisition of cash to cover short-term liabilities.Cost Advantages:In theory, the banking industry should handle the needs for short-term loans and accept short-term deposits. Banks also have an information advantage on the credit-worthiness of participants.Banks do mediate between savers and borrowers; however, they are heavily regulated.This creates a distinct cost advantage for money markets over banks.Reserve requirements create additional expense for banks that money markets do not have regulations on the level of interest banks could offer depositors lead to a significant growth in money markets, especially in the 1970s and 1980s. When interest rates rose, depositors moved their money from banks to money markets to earn a higher interest rate.Even today, the cost structure of banks limits their competitiveness to situations where their informational advantages outweighs their regulatory costs.The suppliers of funds for money market instruments are institutions and individuals with a preference for the highest liquidity and the lowest risk. Often, money market instruments are a parking place for temporary excess cash of investors and corporations. Interest rates on money market instruments are typically quoted on a bank discount basis.Retail money market dealers work independently or in syndicated groups to efficiently distribute available supplies of money market instruments tosecuritiesdealers,banks,and other financial intermediaries who broker them to retail clients. In addition to dealers, institutions and funds repackage money market instruments into money marketmutual fundsto allow participation at almost any level.2. Functions of the money market(1)Financing Trade:Money Market plays crucial role in financing both internal as well as international trade. Commercial finance is made available to the traders through bills of exchange, which are discounted by the bill market. The acceptance houses and discount markets help in financing foreign trade.(2) Financing Industry:Money market contributes to the growth of industries in two ways:(a) Money market helps the industries in securing short-term loans to meet their working capital requirements through the system of finance bills, commercial papers, etc.(b) Industries generally need long-term loans, which are provided in the capital market. However, capital market depends upon the nature of and the conditions in the money market. The short-term interest rates of the money market influence the long-term interest rates of the capital market. Thus, money market indirectly helps the industries through its link with and influence on long-term capital market.(3) Profitable Investment:Money market enables the commercial banks to use their excess reserves in profitable investment. The main objective of the commercial banks is to earn income from its reserves as well as maintain liquidity to meet the uncertain cash demand of the depositors. In the money market, the excess reserves of the commercial banks are invested in near-money assets (e.g. short-term bills of exchange) which are highly liquid and can be easily converted into cash. Thus, the commercial banks earn profits without losing liquidity.(4) Self-Sufficiency of Commercial Bank:Developed money market helps the commercial banks to become self-sufficient. In the situation of emergency, when the commercial banks have scarcity of funds, they need not approach the central bank and borrow at a higher interest rate. On the other hand, they can meet their requirements by recalling their old short-run loans from the money market.(5) Help to Central Bank:Though the central bank can function and influence the banking system in the absence of a money market, the existence of a developed money market smoothens the functioning and increases the efficiency of the central bank.Money market helps the central bank in two ways:(a) The short-run interest rates of the money market serves as an indicator of the monetary and banking conditions in the country and, in this way, guide the central bank to adopt an appropriate banking policy.(b) The sensitive and integrated money market helps the central bank to secure quick and widespread influence on the sub-markets, and thus achieve effective implementation of its policy.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.3.ParticipantsThe money market consists of financial institutions and dealers in money or credit who wish to either borrow or lend. Participants borrow and lend for short periods of time, typically up to thirteen months. Money market trades in short-term financial instruments commonly called paper. This contrasts with the capital market for longer-term funding, which is supplied by bonds and equity.The core of the money market consists of interbank lendingbanks borrowing and lending to each other using commercial paper, repurchase agreements and similar instruments. These instruments are often bench marked to (i.e. priced by reference to) the London Interbank Offered Rate (LIBOR) for the appropriate term and currency.Finance companies typically fund themselves by issuing large amounts of asset-backed commercial paper (ABCP) which is secured by the pledge of eligible assets into an ABCP conduit. Examples of eligible assets include auto loans, credit card receivables, residential/commercial mortgage loans, mortgage-backed securities and similar financial assets. Certain large corporations with strong credit ratings, such as General Electric, issue commercial paper on their own credit. Other large corporations arrange for banks to issue commercial paper on their behalf via commercial paper lines.In the United States, federal, state and local governments all issue paper to meet funding needs. States and local governments issue municipal paper, while the US Treasury issues Treasury bills to fund the US public debt:(1)Trading companies often purchase bankers acceptances to be tendered for payment to overseas suppliers.(2)Retail and institutional money market funds(3)Banks(4)Central banks(5)Cash management programs(6)Merchant banks4. Common money market instrumentsMajor categories of money market instruments include the following: federal fundsloaned to banks repurchase agreements certificates of deposit commercial paper bankers acceptances Eurodollar deposit federal agency short-term securities treasury bills money funds foreign exchange swaps（1）Federal funds Federal funds are short-term loans, mostly overnight, exchanged between banks that have reserve accounts in the Federal Reserve system. The Federal Reserve is not the source of the funds, but its regional banks provide the infrastructure for this market. A federal funds loan is generally arranged in one of two ways: (1) a wire transfer over the Fed wire system from the lending banks account to the borrowing banks account; (2) when the two banks have a respondent/correspondent relationship, a respondent bank can allow the correspondent bank to temporarily reclassify the formers deposits as a federal funds purchase on the books. A broker may also mediate a federal funds transaction by linking a borrower and a lender for a commission. Federal funds borrowing pays interest at a market-determined federal funds rate, although the rate is closely influenced by Federal Reserve monetary policy.（2）Repurchase agreementsRepurchase agreements, also known as repos or RPs, are somewhat more complex transactions that involve selling one or more securities, typically Treasury instruments, to receive short-term cash, but with an agreement to buy them back at a specified time and price. In effect, repos function like special-purpose collateralizedloansbetween institutions. Most repos (they may be called reverse repos depending on which partys perspective is considered) last only overnight or for several days, but they may extend for up to six months. Interest paid to the cash lender under a repo is determined by a number of general market conditions, but in general the rate is somewhat lower than the federal funds rate.（3）Certificates of depositCertificates of deposit (CDs) are certificates issued by a federally chartered bank against deposited funds that earn a specified return for a definite period of time. Large denomination (jumbo) CDs of $100,000 or more are generally negotiable and pay higher interest than smaller denominations. However, such certificates are insured by the FDIC only up to $100,000. A Yankee CD is a CD issued by domestic branches of foreign banks.EurodollarCDs are negotiable certificates issued against U.S. dollar obligations in a foreign branch of a domestic bank.Brokerage firms have a nationwide pool of bank CDs and receive a fee for selling them. Since brokers deal in large sums, brokered CDs generally pay higher interest rates and offer greater liquidity than CDs purchased directly from a bank, since brokers maintain an active secondary market in CDs.（4）Commercial paperCommercial paper (CP) refers to unsecured short-termpromissory notesissued by financial and nonfinancial corporations. CP has maturities of up to 270 days (the maximum allowed without SEC registration requirement), but more often it expires within 30 days. Dollar volume for CP exceeds the amount of any money market instrument other thanU.S. Treasury bills.CP is typically issued by large, credit-worthy corporations with unused lines of bank credit and, therefore, carries lowdefaultrisk. As of year-end 1998, more than 77 percent of commercial paper in the United States was issued by domestic financial institutions, mostly nonbank financial companies (although some banks also participate). Approximately one-sixth was issued by domestic nonfinancial companies, and the remainder came from foreign companies, both financial and nonfinancial.Commercial paper can be issued directly by the company to creditors, using internal transactors or a bank as an agent. The bank assumes no principal position and is in no way obligated with respect to repayment of the CP. Companies may also sell CP through dealers who charge a fee and arrange for the transfer of the funds from the lender to the borrower.（5）Bankers acceptancesBankers acceptances are generally used to finance foreign trade. A buyers promise to pay a specific amount of money at a fixed or determinable future time (usually less than 180 days) is issued to a seller. A bank then guarantees or accepts this promise in exchange for a claim on the goods as collateral. The seller may obtain immediate cash in lieu of future payment by selling the acceptance at a discount.While money market instruments themselves are usually available only to corporations or other institutions, smaller investors can participate indirectly by buying shares of money market funds. These are mutual funds that pool investors resources to create a portfolio of money market instruments. Hence, they are highly liquid mutual funds (i.e., investors can get in and out easily without worry of taking a loss) that generally do not appreciate ordepreciatevery much, but maintain the value of an investors principal as well as paying a small interest fee. The typical fund holds its share price close to $1 at all times, and some -particularly those geared toward institutionshave minimum investment requirements. Both taxable and tax-exempt money market funds are available, with the latter holding mostly state and municipal securities. Money market funds are often used as temporary holding accounts for funds that are in between investments, such as for uninvested cash on hand in a stock brokerage account, or as interestbearing checking accounts. In the late 1990s more than $1 trillion was held in U.S. money market funds.Active trading in money market futures and options occurs on a number ofcommodity exchanges.These contracts function like any other futures or options contract, only the underlying security is one or more money market instruments. Investors, hedgers, and speculators can either buy or sell options or futures based on the direction they believe the market will take over a specified period. Futures contracts require the initiating party to reconcile or offset the transaction when the contract expires