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1. The document discusses the components of the money market, including interbank deposits, trading of money market instruments, and various Malaysian money market instruments like Treasury Bills and Bank Negara Malaysia Bills.
2. It then covers pricing of money market instruments using formulas, how interest rates and prices are related, and the roles of surplus and deficit banks.
3. The central bank's activities in the money market are outlined, including ensuring banking system stability, implementing monetary policy, offsetting external imbalances, and sterilizing forex operations. Managing asset-liability mismatches is also discussed.
1. The document discusses the components of the money market, including interbank deposits, trading of money market instruments, and various Malaysian money market instruments like Treasury Bills and Bank Negara Malaysia Bills.
2. It then covers pricing of money market instruments using formulas, how interest rates and prices are related, and the roles of surplus and deficit banks.
3. The central bank's activities in the money market are outlined, including ensuring banking system stability, implementing monetary policy, offsetting external imbalances, and sterilizing forex operations. Managing asset-liability mismatches is also discussed.
1. The document discusses the components of the money market, including interbank deposits, trading of money market instruments, and various Malaysian money market instruments like Treasury Bills and Bank Negara Malaysia Bills.
2. It then covers pricing of money market instruments using formulas, how interest rates and prices are related, and the roles of surplus and deficit banks.
3. The central bank's activities in the money market are outlined, including ensuring banking system stability, implementing monetary policy, offsetting external imbalances, and sterilizing forex operations. Managing asset-liability mismatches is also discussed.
Between bank-to-bank. Consist of short-term borrowed (I day, overnight or 1 week) This popular because have a realtions between borrowing and lending to settle down the clearance check. Example : CIMB Bank have a RM 250 Billion check withdrawal dari customer Maybank, but CIMB just have a RM 200 Million. So, CIMB a debt with Maybank as much as rm 50 Million, so theres is interest the debt. Below is the calculation for the interest.
Money Market Components 2.
Trading of money market instruments
Consist of any salin variety of security (short-term) No physical money market. The suppliers of funds for money market instruments are institutions and individuals. Important for businesses because it allows companies with a temporary cash surplus to invest in short-term securities
Malaysian Money Market
Instruments 3.1 : Malaysian Treasury Bills (MTB) It give in a small amount because its have a limit liquidity. The typical maturities are 3, 6 and 12 months. Example, Goverment had give a debt to 1MDB around 2.1 Billion in a short period payment.
Malaysian Money Market
Instruments 3.2 Bank Negara Malaysia Bills (BNB) BNB are short-term securities issued by Bank Negara Malaysia and are bidded on yield basis. The maturity is always less than a year. The yield is specified as a rate of discount and the tenor of BNB are expressed in actual number of days.
Malaysian Money Market
Instruments 3.3 : Malaysian Government Securities (MGS) MGS are sovereign debt papers or bonds issued by the Malaysian government to raise funds in the domestic capital market. They typically have fixed coupon rates (interest rates) that are paid on a semi annual basis. 5 years >
Malaysian Money Market
Instruments 3.4 : Bankers Acceptances (BAS) The financial institution promises to pay the exporting firm a specific amount on a specific date, at which time it recoups its money by debiting the importers account. A bankers acceptance, or BA, works much like a post-dated check, which is simply an order for a bank to pay a specified party at a later date. HSBC give pinjaman
Malaysian Money Market
Instruments 3.5 : Commercial Papers (CP) Commercial Papers are short term, unsecured (promissory notes) debt instruments issued by corporations Commercial paper is amoneymarketsecurityissued (sold) by largecorporationsto obtainfundsto meet short-termdebtobligations (for example,payroll), and is backed only by an issuing bank or corporation's promise to pay the face amount on the maturity date specified on the note.
Malaysian Money Market
Instruments 3.6 : Cagamas notes Cagamas Notes are short-term securities with the tenor of 12 months or less. The notes are similar to MTB and normally issued at a discount. The issuer is the National Mortgage Corporation; CAGAMAS. At maturity they are redeemable at nominal value.
Malaysian Money Market
Instruments 3.7 : Cagamas bonds Cagamas bonds are longer term debt instruments issued by the National Mortgage Corporation The bonds are often the result of securitization of housing loans of local commercial banks that have been purchased by CAGAMAS. The bonds have either a fixed coupon rate or a floating coupon.
Malaysian Money Market
Instruments 3.8 : Khazanah bonds Khazanah bonds are essentially rated as government paper They share many of the same features of MGS securities.
Malaysian Money Market
Instruments 3.9 :Negotiable instrument of deposits (NIDS) To enable bank deposits to be traded on the secondary market NIDs being of private issuance, typically provide a higher yield than the treasury bills The underlying asset is typically an MGS, government bond or other liquid instruments
Pricing Of Money Market
Instruments The factors that determine an instruments price : Time left to maturity (in days) The nominal or face value of the instrument (redeemable amount) The required return or yield for the instruments (discount factor) and The coupon / interest payment, if any
Determining the price of a
Money Market Instrument P = Price of instrument FV = Face value or redeemable amount at maturity r = Required yield (discount factor) t = number of days left to maturity * This formula just to get the interest at the end of the contract.
Interest Rates, Yields
And Price Of Money Market Instruments Based on discounting and hence, are very
sensitive to changes in interest rates
Funds flow easily between the two and this ensures co-movement in their yields/rates of return. If the rate a lower, that means the price is higher, and its turn back if the rate is higher. And its consist of two player which one is the surplus, and another is the deficit one.
Price
Interest rates
Lend funds
SURPLUS BANK
DEFICIT BANK
The Central Bank, Money
Market And Monetary Policy Operations
A central banks activity in money
markets typically has four broad policy objectives;
1) Ensuring the smooth functioning of the
banking system 2) Implementation of monetary policy 3) Offsetting imbalances resulting from the external sector 4) Sterilization of forex market operations
1. Ensuring the smooth
functioning of the banking system
This to make sure theres is no imbalances
in liquidity between player. Because if it exist a net shortage could lead to a credit crunch if unchecked And will cause excess liquidity that will give a bad impact for the company
2. Implementation of monetary policy
Monetary policy has two legs : i) interest rates ii)
money supply - The central control the liquidity of money by these type of control which if theres a lot of money in market, so they make higher rate, and if theres no money, so they supply it back. central bank can undertake the sale of government securities: i) drive down liquidity and thereby raise the yields and interest rates ii) offering higher rates on deposits of commercial banks
3. Offsetting imbalances resulting
from the external sector External imbalances can quickly translate into sudden imbalances i) Sudden inflow of funds through FDI Ii) Outflow due to higher rates elsewhere
4. Sterilization of forex market
operations often intervene in foreign exchange markets to influence exchange rates In order to offset any side effects due to the foreign exchange intervention
Managing asset liability mismatches
Why do mismatches ? - Due to the different maturity of items When a banks asset-liability imbalances are temporary in nature, depending on the interbank money market is perfectly acceptable. How? - i) A bank with surplus funds can either lend by placing deposits with other banks in the interbank deposit system or lend by purchasing money market instruments - Ii) A bank with a cash deficit can borrow by either taking / accepting deposits in the interbank deposit system or sell money market instruments Relying on money markets to fund asset growth is a risky strategy.