Chapter7MoneyMarkets(金融市场学).ppt

7,Money Markets,Chapter Objectives,Provide a background on money market securitiesExplain how institutional investors use money marketsExplain the globalization of money markets,Money Market Securities,Maturity of a year or lessDebt securities issued by corporations and governments that need short-term fundsLarge primary market focusPurchased by corporations and financial institutionsSecondary market for securities,Money Market Securities,Treasury BillsCommercial paperNegotiable certificates of depositsRepurchase agreementsFederal fundsBankers acceptances,Money Market Securities,Treasury billsIssued to 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 market,Money Market Securities,Treasury bill auction(fill bids in amount determined by Treasury borrowing needs)Bid process used to sell T-billsBids submitted to Federal Reserve banks by the deadlineBid processAccepts highest bidsAccepts bids until Treasury needs generated,Competitive Bidding,Money Market Securities,Treasury bill auctionnoncompetitive bids($1 million limit)May be used to make sure bid is acceptedPrice 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 price,Noncompetitive Bidding,Money Market Securities,Estimating 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 selling price adjusted for time,Money Market Securities,Calculating T-Bill Annualized Yield,YT,SP PP,PP,365,n,YT=The annualized yield from investing in a T-bill,SP=Selling price,PP=Purchase price,n=number of days of the investment(holding period),=,Money Market Securities,T-bill yield for a newly issued security,Par PP,PP,360,n,T-bill discount=percent discount of the purchase price from par,Par=Face value of the T-bills at maturity,PP=Purchase price,n=number of days to maturity,T-bill discount,=,Money Market Securities,Short-term debt instrumentAlternative to bank loanDealer placed vs.directly placedUsed only by well-known and creditworthy firmsUnsecuredMinimum denominations of$100,000Not a large secondary market,Commercial Paper,Money Market Securities,Commercial paper backed by bank lines of creditBank line used if company loses credit ratingBank lends to pay off commercial paperBank charges fees for guaranteed line of credit,Money Market Securities,Estimating commercial paper yields,YCP,Par PP,PP,360,n,YCP=Commercial paper yield,Par=Face value at maturity,PP=Purchase price,n=number of days to maturity,=,Money Market Securities,Issued by large commercial banksMinimum denomination of$100,000 but$1 million more commonPurchased by nonfinancial corporations or money market fundsSecondary markets supported by dealers in security,Negotiable Certificates of Deposit(NCD),Money Market Securities,NCD placementDirect placementUse a correspondent institution specializing in placementSell to securities dealers who resellSell direct to investors at a higher priceNCD premiumsRate above T-bill rate to compensate for lower liquidity and safety,Money Market Securities,Sell a security with the agreement to repurchase it at a specified date and priceBorrower defaults,lender has securityReverse repo name for transaction from lenderNegotiated over telecommunications networkDealers and brokers used or direct placementNo secondary market,Repurchase Agreements,Money Market Securities,Estimating repurchase agreement yields,Repo Rate,SP PP,PP,360,n,Repo Rate=Yield on the repurchase agreement,SP=Selling price,PP=Purchase price,n=number of days to maturity,=,Money Market Securities,Interbank 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 buyers and sellers using telecommunications networkUsually$5 million or more,Federal Funds,Exhibit 6.5,a,Money Market Securities,A 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 draft from the importer ACCEPTED and obligates the bank to make good on the payment at a specific time,Bankers Acceptance,Money Market Securities,Exporter 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 calculations for other discount securities Similar to the commercial paper example,Bankers Acceptance,Major Participants in Money Market,ParticipantsCommercial banksFinance,industrial,and service companiesFederal and state governmentsMoney market mutual fundsAll other financial institutions(investing)Short-term investing for income and liquidityShort-term financing for short and permanent needsLarge transaction size and telecommunication network,Valuation of Money Market Securities,Present value of future cash flows at maturity(zero coupon)Value(price)inversely related to discount rate or yieldMoney market security prices more stable than longer term bondsYields=risk-free rate+default risk premium,Exhibit 6.7,a,Interaction Among Money Market Yields,Securities are close investment substitutesInvestors trade to maintain yield differentialsT-Bill is the benchmark yield in money marketYield changes in T-bills quickly impacts other securities via dealer tradingYield differentials determined by risk differences between securitiesDefault risk premiums vary inversely with economic conditions,Globalization of Money Markets,Money market rates vary by countrySegmented marketsTax differencesEstimated exchange ratesGovernment barriers to capital flowsDeregulation Improves Financial IntegrationCapital Flows To Highest Rate of Return,Globalization of Money Markets,Eurodollar 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 financing,Globalization of Money Markets,Euro-commercial paperIssued without the backing of a banking syndicateMaturity tailored to investorsDealers that place paper create a secondary marketRates range between 50 and 100 basis points above the LIBOR rate,Globalization of Money Markets,Performance of international securitiesEffective yield for international securities has two componentsThe yield earned on the investment denominated in the currency of the investmentThe exchange rate effect,Globalization of Money Markets,Performance of international securitiesYield for an international investment,Yf,SPf PPf,PPf,Yf=Foreign investments yield,SPf=Investments foreign currency selling price,PPf=Investments foreign currency purchase,=,Chapter Concepts Summary,Surplus units channel investments to securities issued by deficit unitsDebt securities marketsMoney MarketCapital MarketMoney market securitiesShort-termHigh qualityVery good liquidity,