4. Money market

International financial services 1

Main fields of interest

• Money market architecture

• Main segments of money market

• Main instruments

• Interest rates quotation, reference interest rates

Money market structure

Banking system liquidity

management

Monetary policy implementation

Unsecured interbank market

Secured interbank market

Interest rates derivatives

Short-term securities

Liquidity of banking system

Individual liquiditySpeculation

HedgingLiquidity

investments

O/N interest rate Spot yield curveForward yield curve, volatility of interest

rates

Interest rates spread

Unsecured interbank market

• main segment of money market used for alocation liquidity among the banks and for liquidity distribution between central bank and banks

• strong O/N maturity preference in liquidity managmenet and due to credit risk management

• under strong impact of financial crisis, new capital base and liquidity regulation

• strong preference of counterparty from home economy (inside monetary union)

Maturity structure and volume of trades in EUR interbank market

Structure of counterparties on Eurointerbank market in 2010

Secured interbank market – repo market

• repo as term deposit secured by collateral in terms of securities or as a sell and buy back transaction

• main instrument for bank‘s liquidity management and short-term funds alocation

• a way of financing of bond issuance, bond holding and short exposure covering in securities market

• bilateral, bilateral CCPs (BrokerTec, Eurex repo a MTS) and tri-party repo trades (custodian banks)

• repo rate as a price of repo trade • initial margin and haircut• preference of short-term maturity

Dolar, euro and pound repo market

Structure of Euro repo market according a type of trade

Main interest rate derivatives

• FRA

• interest rate swap

• interest rate option

• exchange traded futures and options

FRA (OTC); 006%

Interest rate swaps

(OTC); 012%

Interest rate op-

tions (OTC); 002%

Exchange traded in-terest rate

futures and op-tions; 080%

Euromoney market

• Eurointerbank market

• Leading world bank‘s liquidity management

• LIBOR as reference interest rate for banking loans

• Eurocommercial papers and euronotes

• Alternative to short-term banking loan and T-bills