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7/31/2019 What is Money Market_By_WwW.MobileMovieSite.Com

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Presented By

Muhammad Khaliq Uz-Zaman


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Academic Background:

BBA &MBA from Bahria University.

Professional Qualification:

CFA Level I Exam.

ACI Certified Treasury Dealer.

JAIBP from Institute of Bankers Pakistan.

Prospective Qualification:

MS Economics From IBA


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What is treasury?

What is Money Market?

Money Market Classification.

Money Market Instruments.

Money Market Transaction.

Tools for Monetary Management.


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It is the department of any Bank or a financialinstitution which performs duty of

Fund Management

Asset and Liability Management


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The money market (MM) is a wholesale market forlow risk, highly liquid, short-term debt instruments

It serves as an avenue through which banks andfinancial institutions can offload their excess liquidityor meet their short-term funding requirements.

To the government an organized MM represents ameans for it to implement its monetary policies in an

efficient manner. Moreover, it provides it with aliquid market for securities through which it canfinance its own borrowing requirements.


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Primary Market

Secondary Market


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The primary market constitutes the government ofPakistan selling its securities through the State Bankof Pakistan by carrying out auctions

Through these auctions the government invites bids

for its Treasury Bills in fixed tenors of 3, 6 and 12months and Pakistan Investment bonds in 3, 5,7, 10,15 and 20 Years

A pre-auction target is announced in

advance.(Quarterly Targets for T-Bills and Halfyearly for PIBs)

All GoP securities are issued to Primary Dealers(PD) appointed by the State Bank only.


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The securities issued in the primary market are thentraded in the secondary market, which constitutes thevarious financial institutions trading among themselvesthrough brokers or directly

The securities once sold to the PDs may be bought bynon-PD banks,Corporates,MM Mutual Funds, PensionFunds, Insurance Companies etc in the secondarymarkets

The two markets are linked in the sense that the rates atwhich bids are accepted in the auction have a directbearing on the rates prevailing in the secondary market.


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Treasury Bills.

Pakistan Investment Bonds (PIBs).

Term Finance Certificates.

GOP Ijarah Sukuk.


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They are zero-coupon bonds issued at a discount, havea par value of Rs 100 and a maturity of three, six ortwelve months.

T-Bills are short term securities issued by the StateBank on behalf of the Ministry of Finance throughauctions or OMOs (Open Market Operations).


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Price =

_____100________

(1+ __i__*DTM)365

DTM=Days to Maturity

i= Interest rate


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The price of T-bill with 84 days to maturity andcurrently trading at 13.15% in MM

= _______100________

(1+13.15/36500*84)

= 97.06


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o Measurement of Interest rates

Interest rate can be defined as price of credit or return to capital. Interestrate can be measured through:

I. Yield to Maturity (YTM) this equalizes current market value of a loan orsecurity with the expected future income such loan could generate. TheYTM is calculated as :

n

n

n

t

t

t

YTM

V

YTM

CFEPV

)1()1(

)(

1

Or

n

t

n

n

t

t

I

FV

I

PmtPV

1 )1()1((1)

Where

PV = current market value of asset

CF = expected cash flow

FV = Expected value of asset at maturity

I = market interest rate


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II. Bank discount rate (DR) the rate usually quoted on short-term loans and government securities. This calculated as:

DR = 100 Purchase price of loan or security100

X 360 (2)

Number of days to maturity

III. YTM equivalent this is a means of converting DR to YTMand it is calculated as:

YTM (100 Purchase price) 365

equivalent = Purchase price X Days to maturity

yield (3)


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The Most Dangerous MM Instrument . Pakistan Investment Bonds (PIB) were launched

in December 2000 to replace FIBs

PIBs are issued in five tenors; 3Y, 5Y,7Y, 10Y, 15Y,

20Y and 30Y. The current coupons rates are 11.25%, 11.50%,

11.75%, 12.00%,12.50%,12.75% and 13%respectively.


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Term Finance Certificates are redeemable capitalinstruments and may be issued by a company directlyto the general public, which also includes institutions.

Unlike straight bonds, they are redeemable capital and

are of long tenors i.e. more than one year. They arequoted on a price basis rather than yield to maturity.

Earnings from TFCs are taxable @10% (Withholdingtax as per the Income Tax Ordinance and zakat isdeducted @2.50%.


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Repo Transaction.

Call/Clean Transaction

COI Transaction.


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Repurchase Agreements (Repos) are basically ameans of raising funds by selling governmentapproved securities at a fixed rate, with the intention ofrepurchasing them at a specified future date.

For the party selling the security (borrower of funds)the transaction is referred to as a repo whereas for theparty purchasing it (lender of funds), the transaction isreferred to as a reverse repo.

Repo Transaction ranges from O/N (i.e. One Day) to 1

Year.


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Example:

Bank A needs to borrow Rs 1 billion for 3days (i.e. from 7 jan-2011 to 10 Jan -2011).Bank A have a 3 months t-bill issued on30-12-2010 and mature on 24-3-2011.The three day price

quoted to Bank A for repo is13/13.25. Find the first price and second price ?

Find the first Amount And Second Amount?

First Amount is the amount Bank A receive today and SecondAmount is the Amount Bank A pays at maturity.

PKRV RATES


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PKRV RATES

Slab Bid

0-7 12.73

15-Aug 12.83

16-30 12.90

31-60 13.08

61-90 13.21

91-120 13.3

121-180 13.38

181-270 13.52

271-365 13.69

2 YEARS 13.98

3 YEARS 14.21 4 YEARS 14.22

5 YEARS 14.25

6 YEARS 14.27

7 YEARS 14.33

8 YEARS 14.1

9 YEARS 14.14 10 YEARS 14.31

15 YEARS 14.56

20 YEARS 14.76

30 YEARS 14.93
http://fma.com.pk/KIBOR.aspx?SrNo=7650&Action=Edithttp://fma.com.pk/KIBOR.aspx?SrNo=7651&Action=Edithttp://fma.com.pk/KIBOR.aspx?SrNo=7652&Action=Edithttp://fma.com.pk/KIBOR.aspx?SrNo=7653&Action=Edithttp://fma.com.pk/KIBOR.aspx?SrNo=7654&Action=Edithttp://fma.com.pk/KIBOR.aspx?SrNo=7655&Action=Edithttp://fma.com.pk/KIBOR.aspx?SrNo=7656&Action=Edithttp://fma.com.pk/KIBOR.aspx?SrNo=7657&Action=Edithttp://fma.com.pk/KIBOR.aspx?SrNo=7658&Action=Edithttp://fma.com.pk/KIBOR.aspx?SrNo=7659&Action=Edithttp://fma.com.pk/KIBOR.aspx?SrNo=7660&Action=Edithttp://fma.com.pk/KIBOR.aspx?SrNo=7662&Action=Edithttp://fma.com.pk/KIBOR.aspx?SrNo=7663&Action=Edithttp://fma.com.pk/KIBOR.aspx?SrNo=7664&Action=Edithttp://fma.com.pk/KIBOR.aspx?SrNo=7665&Action=Edithttp://fma.com.pk/KIBOR.aspx?SrNo=7666&Action=Edithttp://fma.com.pk/KIBOR.aspx?SrNo=7667&Action=Edithttp://fma.com.pk/KIBOR.aspx?SrNo=7668&Action=Edithttp://fma.com.pk/KIBOR.aspx?SrNo=7669&Action=Edithttp://fma.com.pk/KIBOR.aspx?SrNo=7669&Action=Edithttp://fma.com.pk/KIBOR.aspx?SrNo=7668&Action=Edithttp://fma.com.pk/KIBOR.aspx?SrNo=7667&Action=Edithttp://fma.com.pk/KIBOR.aspx?SrNo=7666&Action=Edithttp://fma.com.pk/KIBOR.aspx?SrNo=7665&Action=Edithttp://fma.com.pk/KIBOR.aspx?SrNo=7664&Action=Edithttp://fma.com.pk/KIBOR.aspx?SrNo=7663&Action=Edithttp://fma.com.pk/KIBOR.aspx?SrNo=7662&Action=Edithttp://fma.com.pk/KIBOR.aspx?SrNo=7660&Action=Edithttp://fma.com.pk/KIBOR.aspx?SrNo=7659&Action=Edithttp://fma.com.pk/KIBOR.aspx?SrNo=7658&Action=Edithttp://fma.com.pk/KIBOR.aspx?SrNo=7657&Action=Edithttp://fma.com.pk/KIBOR.aspx?SrNo=7657&Action=Edithttp://fma.com.pk/KIBOR.aspx?SrNo=7657&Action=Edithttp://fma.com.pk/KIBOR.aspx?SrNo=7656&Action=Edithttp://fma.com.pk/KIBOR.aspx?SrNo=7656&Action=Edithttp://fma.com.pk/KIBOR.aspx?SrNo=7656&Action=Edithttp://fma.com.pk/KIBOR.aspx?SrNo=7655&Action=Edithttp://fma.com.pk/KIBOR.aspx?SrNo=7655&Action=Edithttp://fma.com.pk/KIBOR.aspx?SrNo=7655&Action=Edithttp://fma.com.pk/KIBOR.aspx?SrNo=7654&Action=Edithttp://fma.com.pk/KIBOR.aspx?SrNo=7654&Action=Edithttp://fma.com.pk/KIBOR.aspx?SrNo=7654&Action=Edithttp://fma.com.pk/KIBOR.aspx?SrNo=7653&Action=Edithttp://fma.com.pk/KIBOR.aspx?SrNo=7653&Action=Edithttp://fma.com.pk/KIBOR.aspx?SrNo=7653&Action=Edithttp://fma.com.pk/KIBOR.aspx?SrNo=7652&Action=Edithttp://fma.com.pk/KIBOR.aspx?SrNo=7652&Action=Edithttp://fma.com.pk/KIBOR.aspx?SrNo=7652&Action=Edithttp://fma.com.pk/KIBOR.aspx?SrNo=7651&Action=Edithttp://fma.com.pk/KIBOR.aspx?SrNo=7651&Action=Edithttp://fma.com.pk/KIBOR.aspx?SrNo=7651&Action=Edithttp://fma.com.pk/KIBOR.aspx?SrNo=7650&Action=Edithttp://fma.com.pk/KIBOR.aspx?SrNo=7650&Action=Edithttp://fma.com.pk/KIBOR.aspx?SrNo=7650&Action=Edithttp://fma.com.pk/KIBOR.aspx?SrNo=7649&Action=Edithttp://fma.com.pk/KIBOR.aspx?SrNo=7649&Action=Edithttp://fma.com.pk/KIBOR.aspx?SrNo=7649&Action=Edit


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Now Calculate first price:

DTM:76

PKRV for 76 DTM=13.21%First Price = 100

(1+ 13.21 *76)

36500= 97.3230

Second Price = FP*(1+ROR/365*No. of days)

= 97.3230* (1+ 13.25 *3)36500

Second Price = 97.4290


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First Amount = face Value *FP/100= 1,000,000,000 * 97.3230

100

= 973,230,000Second Amount = Face Value * SP/100

=1,000,000,000*97.4290/100

= 974,290,000


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Call transactions consist of non-collateralizedlending/borrowing of PKR funds.

All Call/Clean transactions take place on the basis of

line limits between banks and NBFIs. i.e. eachinstitution has an internal limit placing/recieveing a capon the line exposure.

Bank Bank CALL

Bank/ NBFIs CleanNBFI


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It is similar in nature to the Clean Transaction.

Borrower issues a Certificate of Investment tothe Lender.

COI holds no value in the market and only theissuing bank can redeem it.


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1. OPEN MARKET OPERATION.

2. DISCOUNT RATE/REPO RATE.

3.SLR & CRR .


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The SLR is an indirect tool of monetary controlused by the State Bank of Pakistan.

18% of Demand Time Liability for Commercial

Banks and 15% for Development FinancialInstitutions.

T-bills and PIBs are maintained with the SBP.


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Another tool of monetary control with thecentral bank.

Cash reserve is maintained with the SBP.

5% of the Demand Liability for CommercialBanks and 1% for Development FinancialInstitutions.


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Active market players include:

National Bank of Pakistan

United Bank

SCB

Citibank

NIB

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