CHAPTER 9

MONEY MARKET

Content

Definition of money market

Money market instruments
Players in the money market
Current developments

Definition

Financial instrument with high liquidity and

very short maturities are traded
Use by participants as a means for
borrowing and lending from several days
just to under a years.
It consists of financial institutions and dealers
in money or credit who wish to generate
liquidity.
large institutions and government manage
their short term cash needs.
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Benefits of MM

facilitates efficient transfer of short-term

funds between lenders and borrowers of
cash assets.
provides a good return on funds.
it enables rapid and relatively inexpensive
acquisition of cash to cover short-term
liabilities.
Provides a focal point for intervention for
influencing liquidity and general levels of
interest rates in the economy.
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Activities of MM

Through MM participant are able to:

1) Borrow and lend fund

2) Buy and sell MM instruments

Structure of MM in
Malaysia

Can be broadly divided into

Wholesale (Interbank Market)

Players Comm. Bank, Merchant , Finance,

Discount House, Ins co, Pension Fund , Money
Broker & Large corp.

Retail (Commercial Market)

Players (others) non-bank fin. Inst, corp. bodies,

govt. agencies, stat. bodies, ins co., cash-rich
individuals etc.

Money Market
Instruments

Can be categorized as :

Short-term interbank funds

Instruments under Scriptless Securities
System Trading (SSST)
Instrument not under SSST
Other Financial products

Short-term inter bank funds

Borrowing and lending of Ringgit among financial

institution that participate in the interbank money
maket.
Availability of fund is subject to size of inflows and
outflows in the banking system which include
Government disbursement
Maturities and issuance of govt. debt such as MGS, MTB
Interest payment on govt. debts
Tax, royalty and customs pymt. To govt
Central bank intervention.

Cost of funds is determined by market forces of

supply and demand.
Maturities range from overnight to one year or more.

MM under SSST

Malaysian Government Securities (MGS)

Malaysian Government Treasury Bills (MTB)
Bank Negara bills (BNB)
Government Investment Issuance(GII)
Cagamas Bonds and Notes
Khazanah Bonds
Some Commercial Paper (CP), Medium Term
Notes (MTN) and Corporate Bonds

MM not under SSST

Bankers Acceptance (BA)

Negotiable Instruments of Deposits
(NID)

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Others MM Product

Fixed Deposit (FD)

Repo/ Reverse Repo
Short Term Revolving Credit (STRC)
Securities Borrowing and Lending (SBL)
Onshore Foreign Currency Loan (OFCL)
Foreign Currency Accounts (FCA)
KLIBOR Futures, Bonds Futures
Interest Rate SWAP (IRS)
Forward Rate Agreement (FRA)
Currency Swap, Currency Options
Structured Products
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Players in the Money

Market

The basic idea of having a market is to fulfill

the needs of two parties (units). Who are
they?
These units are the participants of the
market.
For money market, its major participants
include Central Bank, commercial banks,
merchant banks, finance companies, discount
houses, insurance companies, corporations,
pension funds and money brokers.
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Players in the Money

Market

Central Bank
manage the nations money supply or

liquidity on behalf of the Government

Influence liquidity through the purchase and
sale of Treasury bills and Government
securities
How?

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Players in the Money

Market

Commercial Banks
Their basic functions are accepting deposits

and granting loans

In addition, they also involve in holding
securities particularly Government papers and
bonds
Also involve with Cagamas securities since
they are greatly involved with the housing loans
Also play a part in trade financing activities
such as bankers acceptance

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Islamic Interbank Money Market

Introduced on January 1994.

A short-term intermediary with the intention to
provide a ready source of short-term
investment outlets based on Syariah principles
The function is to help the market participants
to be able to match their funding requirements
effectively an efficiently
Instruments traded include GII, Bank Negara
Negotiable Notes, Islamic accepted bills and
Islamic private debt securities
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Current Development

Conditions in the domestic money market were

generally stable in 2009. The Malaysian money
market continued to operate under a surplus
liquidity environment, with aggregate surplus
liquidity declining only slightly from RM261 billion
as at end-2008, to RM252 billion as at end-2009.
The tumultuous external events proved to have a
limited impact on domestic money markets. The
money market continued to function smoothly and
experienced minimal volatility.
(Monetary Policy 2009, BNM)
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