2015 Theme 5 Market bourse 1 Essay

Topic your five: The Money Marketplace

Some search terms: treasury newspaper, commercial bill,

bank bill facility, commercial paper (or

promissory note), negotiable license of

first deposit.

25741 Capital Markets

1

Lecture articles

1 .

2 .

3.

4.

5.

six.

7.

Money Market

Pricing

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Impact of changing maturity and interest

price for security rates, yield to maturity,

keeping period produce.

Repos

Treasury Notes

Industrial Bills

пЃ®

Acceptor, Expenses facility

Business Paper

Flexible Certificates of Deposit

25741 Capital Market segments

2

Learning Objectives

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After learning the material from this topic you

should be able to:

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пЃ®

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пЃ®

пЃ®

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explain the differences and similarities among

the securities traded inside the money market.

calculate the price of a money market protection.

describe the impact of changing brings and

maturity on the cost of a market bourse security.

estimate the return from buying a money

market security.

describe the position played by a bank within a bill center.

explain the importance of retailers and

underwriters in the issue of commercial paper.

25741 Capital Markets

three or more

1 . MONEY MARKET

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The cash market is a great over-the-counter

inexpensive market.

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Short-term interest securities happen to be traded in this

market. These kinds of securities:

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пЃ®

have a maturity of lower than one year (i. e. between 2

and 364 days).

make merely one payment, all their face benefit at maturity.

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Dealers quotation yields instead of prices when ever trading

in these securities.

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Their particular price is lower than their face value.

Dual end yields will be quoted with the bid yield being

above the offer yield.

Settlement can be available to negotiation involving the

parties engaged but normally is about the same day because

the trade and is completed through Austraclear.

25741 Capital Markets

5

2 . CHARGES

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Immediate securities will be issued and traded in a

cost that is for cheap to their deal with value.

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They are generally referred to as ‘discount securities'.

Because their only payment is their face benefit at maturity

they can be costed using a simple interest formulae.

face value

face worth п‚ґ365

Price пЂЅ

or perhaps

yield

пѓ· yield

пѓ·

1пЂ«

п‚ґt

365 пЂ« пѓ·

п‚ґdays to maturity пѓ·

75

пѓ· 95

пѓ·

пЃ®

In the first formulae t = times to maturity/365

25741 Capital Markets

5

Illustration

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A real estate investor purchases a short-term security

with a deal with value of $100, 000 and term to

maturity of one hundred and eighty days in the next trading in yield

of 5. 8%pa.

Using the 1st formulae. $100, 000

Price пЂЅ$97, 219. 26 пЂЅ

1пЂ«

пЃ®

5. 8 180

п‚ґ

100 365

$100, 500 п‚ґ365

Employing

the

second formulae.

Cost

пЂЅ$97, 219. 26

пЂЅ

пѓ· five. 8

пѓ·

365 пЂ« пѓ·

п‚ґ180 пѓ·

пѓ· 100

пѓ·

25741 Capital Markets

six

Impact of decrease in

maturity

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The cost of the security increases as its

term to maturity decreases.

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It will have less time before the face value is paid out.

For example , the cost of a initial security having a

face benefit of $22.99, 000, a term to maturity of 180

times and a yield of 5. 8%pa will be $97, 219. twenty six. In 15

days period if the yield remains by 5. 8% the price

can be:

Price пЂЅ$97, 369. sixty-eight пЂЅ

$100, 000

five. 8 169

1пЂ«

п‚ґ

100 365

25741 Capital Markets

several

Impact of yield modify

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The buying price of the security increases

(decrease) if its produce decreases (increases).

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пЃ®

For example , the price of a short-term security using a

face benefit of $100, 000, a term to maturity of 180

days and nights and a yield of 5. 8%pa will be $97, 219. 21.

If its yield boosts to 5. 9% the price can be:

Price пЂЅ$97, 172. 67 пЂЅ

пЃ®

$100, 1000

5. being unfaithful 180

1пЂ«

п‚ґ

75 365

In the event that its yield decreases to 5. 7% the cost would be:

Selling price пЂЅ$97, 265. 90 пЂЅ

$100, 000

5. 7 180

1пЂ«

п‚ґ

100 365

25741 Capital Marketplaces

8

Advertising prior to maturity

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Money market instruments are usually sold prior

to their maturity date. This can be due to:

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In the event that an investor holds their investments until

maturity they get a...



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