CH07MoneyMarkets(金融市场学,上海大学,悉尼大学)

1、7Money MarketsChapter ObjectivesProvide a background on money market securitiesExplain how institutional investors use money marketsExplain the globalization of money marketsMoney Market SecuritiesMaturity of a year or lessDebt securities issued by corporations and governments that need short-term f

2、undsLarge primary market focusPurchased by corporations and financial institutionsSecondary market for securitiesMoney Market SecuritiesTreasury BillsCommercial paperNegotiable certificates of depositsRepurchase agreementsFederal fundsBankers acceptancesMoney Market SecuritiesTreasury billsIssued to

3、 meet the short-term needs of the U.S. governmentAttractive to investors Minimal default riskbacked by Federal GovernmentExcellent liquidity for investorsShort-term maturityVery good secondary marketMoney Market SecuritiesTreasury bill auction (fill bids in amount determined by Treasury borrowing ne

4、eds)Bid process used to sell T-billsBids submitted to Federal Reserve banks by the deadlineBid processAccepts highest bidsAccepts bids until Treasury needs generatedCompetitive BiddingMoney Market SecuritiesTreasury bill auctionnoncompetitive bids($1 million limit)May be used to make sure bid is acc

5、eptedPrice is the weighted average of the accepted competitive bidsInvestors do not know the price in advance so they submit check for full par valueAfter the auction, investor receives check from the Treasury covering the difference between par and the actual priceNoncompetitive BiddingMoney Market

6、 SecuritiesEstimating T-bill yieldNo coupon paymentsPar or face value received at maturityYield at issue is the difference between the selling price and par or face value adjusted for timeIf sold prior to maturity in secondary marketYield based on the difference between price paid for T-bill and sel

7、ling price adjusted for time Money Market SecuritiesCalculating T-Bill Annualized YieldYTSP PP PP365 nYT = The annualized yield from investing in a T-bill SP = Selling pricePP = Purchase price n = number of days of the investment (holding period)=Money Market SecuritiesT-bill yield for a newly issue

8、d securityPar PP PP360 nT-bill discount = percent discount of the purchase price from parPar = Face value of the T-bills at maturityPP = Purchase price n = number of days to maturityT-bill discount=Money Market SecuritiesShort-term debt instrumentAlternative to bank loanDealer placed vs. directly pl

9、acedUsed only by well-known and creditworthy firmsUnsecuredMinimum denominations of $100,000Not a large secondary marketCommercial PaperMoney Market SecuritiesCommercial paper backed by bank lines of creditBank line used if company loses credit ratingBank lends to pay off commercial paperBank charge

10、s fees for guaranteed line of creditMoney Market SecuritiesEstimating commercial paper yieldsYCPPar PP PP360 nYCP = Commercial paper yieldPar = Face value at maturityPP = Purchase price n = number of days to maturity=Money Market SecuritiesIssued by large commercial banksMinimum denomination of $100

11、,000 but $1 million more commonPurchased by nonfinancial corporations or money market fundsSecondary markets supported by dealers in securityNegotiable Certificates of Deposit (NCD)Money Market SecuritiesNCD placementDirect placementUse a correspondent institution specializing in placementSell to se

12、curities dealers who resellSell direct to investors at a higher priceNCD premiumsRate above T-bill rate to compensate for lower liquidity and safetyMoney Market SecuritiesSell a security with the agreement to repurchase it at a specified date and priceBorrower defaults, lender has securityReverse re

13、po name for transaction from lenderNegotiated over telecommunications networkDealers and brokers used or direct placementNo secondary marketRepurchase AgreementsMoney Market SecuritiesEstimating repurchase agreement yieldsRepo RateSP PP PP360 nRepo Rate = Yield on the repurchase agreementSP = Sellin

14、g pricePP = Purchase price n = number of days to maturity=Money Market SecuritiesInterbank lending and borrowingFederal funds rate usually slightly higher than T-bill rateFed district bank debits and credits accounts for purchase (borrowing) and sale (lending)Federal funds brokers may match up buyer

15、s and sellers using telecommunications networkUsually $5 million or moreFederal FundsExhibit 6.5a1Purchase OrderShipment of Goods5L/C3Shipping Documents & Time DraftDraft Accepted (B/A Created)7Japanese Bank(Exporters Bank)American Bank(Importers Bank)ImporterExporter2L/C (Letter of Credit) Applicat

16、ion4L/C Notification6Shipping Documents & Time DraftMoney Market SecuritiesA bank takes responsibility for a future payment of trade bill of exchangeUsed mostly in international transactionsExporters send goods to a foreign destination and want payment assurance before sendingBank stamps a time draf

17、t from the importer ACCEPTED and obligates the bank to make good on the payment at a specific timeBankers AcceptanceMoney Market SecuritiesExporter can hold until the date or sell before maturityIf sold to get the cash before maturity, price received is a discount from drafts totalReturn is based on

18、 calculations for other discount securities Similar to the commercial paper exampleBankers AcceptanceMajor Participants in Money MarketParticipantsCommercial banksFinance, industrial, and service companiesFederal and state governmentsMoney market mutual fundsAll other financial institutions (investi

19、ng)Short-term investing for income and liquidityShort-term financing for short and permanent needsLarge transaction size and telecommunication networkValuation of Money Market SecuritiesPresent value of future cash flows at maturity (zero coupon)Value (price) inversely related to discount rate or yi

20、eldMoney market security prices more stable than longer term bondsYields = risk-free rate + default risk premiumExhibit 6.7aInternationalEconomicConditionsU.S.FiscalPolicyIssuersIndustryConditionsRiskPremiumof IssuerShort-TermRisk-FreeInterestRate(T-bill Rate)IssuersUniqueConditionsU.S.MonetaryPolic

21、yU.S.EconomicConditionsRequired Returnon the MoneyMarket SecurityPrice of theMoney MarketSecurityInteraction Among Money Market YieldsSecurities are close investment substitutesInvestors trade to maintain yield differentialsT-Bill is the benchmark yield in money marketYield changes in T-bills quickl

22、y impacts other securities via dealer tradingYield differentials determined by risk differences between securitiesDefault risk premiums vary inversely with economic conditionsGlobalization of Money MarketsMoney market rates vary by countrySegmented marketsTax differencesEstimated exchange ratesGover

23、nment barriers to capital flowsDeregulation Improves Financial IntegrationCapital Flows To Highest Rate of ReturnGlobalization of Money MarketsEurodollar deposits and EuronotesDollar deposits in banks outside the U.S. Increased because of international trade growth and U.S. trade deficits over timeNo reserve requirements at banks outside U.S.Eurodollar Loans Channel funds to other multinationals that need short-term financingGlobalization of Money MarketsEuro-commercial paperIssued without the backing of a banking syndicateMaturity tailored to investorsDeale