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1、CHAPTER7Money MarketsChapter ObjectivesnProvide a background on money market securitiesnExplain how institutional investors use money marketsnExplain the globalization of money marketsMoney Market SecuritiesnMaturity of a year or lessnDebt securities issued by corporations and governments that need
2、short-term fundsnLarge primary market focusnPurchased by corporations and financial institutionsnSecondary market for securitiesMoney Market SecuritiesnTreasury BillsnCommercial papernNegotiable certificates of depositsnRepurchase agreementsnFederal fundsnBankers acceptancesMoney Market SecuritiesnT
3、reasury billslIssued to meet the short-term needs of the U.S.governmentlAttractive to investors uMinimal default riskbacked by Federal GovernmentuExcellent liquidity for investorsnShort-term maturitynVery good secondary marketMoney Market SecuritiesnTreasury bill auction(fill bids in amount determin
4、ed by Treasury borrowing needs)lBid process used to sell T-billslBids submitted to Federal Reserve banks by the deadlinelBid processuAccepts highest bidsuAccepts bids until Treasury needs generatedCompetitive BiddingMoney Market SecuritiesnTreasury bill auctionnoncompetitive bids($1 million limit)lM
5、ay be used to make sure bid is acceptedlPrice is the weighted average of the accepted competitive bidslInvestors do not know the price in advance so they submit check for full par valuelAfter the auction,investor receives check from the Treasury covering the difference between par and the actual pri
6、ceNoncompetitive BiddingMoney Market SecuritiesnEstimating T-bill yieldlNo coupon paymentslPar or face value received at maturitylYield at issue is the difference between the selling price and par or face value adjusted for timelIf sold prior to maturity in secondary marketuYield based on the differ
7、ence between price paid for T-bill and selling price adjusted for time Money Market SecuritiesnCalculating T-Bill Annualized YieldYT SP PP PP365 nYT =The annualized yield from investing in a T-bill SP=Selling pricePP=Purchase price n=number of days of the investment(holding period)=Money Market Secu
8、ritiesnT-bill yield for a newly issued securityPar PP PP360 nT-bill discount =percent discount of the purchase price from parPar=Face value of the T-bills at maturityPP=Purchase price n=number of days to maturityT-bill discount=Money Market SecuritieslShort-term debt instrumentlAlternative to bank l
9、oanlDealer placed vs.directly placedlUsed only by well-known and creditworthy firmslUnsecuredlMinimum denominations of$100,000lNot a large secondary marketCommercial PaperMoney Market SecuritiesnCommercial paper backed by bank lines of creditlBank line used if company loses credit ratinglBank lends
10、to pay off commercial paperlBank charges fees for guaranteed line of creditMoney Market SecuritiesnEstimating commercial paper yieldsYCPPar PP PP360 nYCP =Commercial paper yieldPar=Face value at maturityPP=Purchase price n=number of days to maturity=Money Market SecuritieslIssued by large commercial
11、 bankslMinimum denomination of$100,000 but$1 million more commonlPurchased by nonfinancial corporations or money market fundslSecondary markets supported by dealers in securityNegotiable Certificates of Deposit(NCD)Money Market SecuritiesnNCD placementlDirect placementlUse a correspondent institutio
12、n specializing in placementlSell to securities dealers who reselllSell direct to investors at a higher pricenNCD premiumslRate above T-bill rate to compensate for lower liquidity and safetyMoney Market SecuritieslSell a security with the agreement to repurchase it at a specified date and pricelBorro
13、wer defaults,lender has securitylReverse repo name for transaction from lenderlNegotiated over telecommunications networklDealers and brokers used or direct placementlNo secondary marketRepurchase AgreementsMoney Market SecuritiesnEstimating repurchase agreement yieldsRepo RateSP PP PP360 nRepo Rate
14、 =Yield on the repurchase agreementSP=Selling pricePP=Purchase price n=number of days to maturity=Money Market SecuritieslInterbank lending and borrowinglFederal funds rate usually slightly higher than T-bill ratelFed district bank debits and credits accounts for purchase(borrowing)and sale(lending)
15、lFederal funds brokers may match up buyers and sellers using telecommunications networklUsually$5 million or moreFederal FundsExhibit 6.5a1Purchase OrderShipment of Goods5L/C3Shipping Documents&Time DraftDraft Accepted(B/A Created)7Japanese Bank(Exporters Bank)American Bank(Importers Bank)ImporterEx
16、porter2L/C(Letter of Credit)Application4L/C Notification6Shipping Documents&Time DraftMoney Market SecuritieslA bank takes responsibility for a future payment of trade bill of exchangelUsed mostly in international transactionslExporters send goods to a foreign destination and want payment assurance
17、before sendinglBank stamps a time draft from the importer ACCEPTED and obligates the bank to make good on the payment at a specific timeBankers AcceptanceMoney Market SecuritieslExporter can hold until the date or sell before maturitylIf sold to get the cash before maturity,price received is a disco
18、unt from drafts totallReturn is based on calculations for other discount securitiesl Similar to the commercial paper exampleBankers AcceptanceMajor Participants in Money MarketnParticipantslCommercial bankslFinance,industrial,and service companieslFederal and state governmentslMoney market mutual fu
19、ndslAll other financial institutions(investing)nShort-term investing for income and liquiditynShort-term financing for short and permanent needsnLarge transaction size and telecommunication networkValuation of Money Market SecuritiesnPresent value of future cash flows at maturity(zero coupon)nValue(
20、price)inversely related to discount rate or yieldnMoney market security prices more stable than longer term bondsnYields=risk-free rate+default risk premiumExhibit 6.7aInternationalEconomicConditionsU.S.FiscalPolicyIssuersIndustryConditionsRiskPremiumof IssuerShort-TermRisk-FreeInterestRate(T-bill R
21、ate)IssuersUniqueConditionsU.S.MonetaryPolicyU.S.EconomicConditionsRequired Returnon the MoneyMarket SecurityPrice of theMoney MarketSecurityInteraction Among Money Market YieldsnSecurities are close investment substitutesnInvestors trade to maintain yield differentialsnT-Bill is the benchmark yield
22、 in money marketnYield changes in T-bills quickly impacts other securities via dealer tradingnYield differentials determined by risk differences between securitiesnDefault risk premiums vary inversely with economic conditionsGlobalization of Money MarketsnMoney market rates vary by countrylSegmented
23、 marketslTax differenceslEstimated exchange rateslGovernment barriers to capital flowsnDeregulation Improves Financial IntegrationnCapital Flows To Highest Rate of ReturnGlobalization of Money MarketsnEurodollar deposits and EuronoteslDollar deposits in banks outside the U.S.lIncreased because of in
24、ternational trade growth and U.S.trade deficits over timelNo reserve requirements at banks outside U.S.nEurodollar Loans lChannel funds to other multinationals that need short-term financingGlobalization of Money MarketsnEuro-commercial paperlIssued without the backing of a banking syndicatelMaturit
25、y tailored to investorslDealers that place paper create a secondary marketlRates range between 50 and 100 basis points above the LIBOR rateGlobalization of Money MarketsnPerformance of international securitiesnEffective yield for international securities has two componentslThe yield earned on the in
26、vestment denominated in the currency of the investmentlThe exchange rate effectGlobalization of Money MarketsnPerformance of international securitiesnYield for an international investment YfSPf PPf PPfYf =Foreign investments yieldSPf =Investments foreign currency selling pricePPf =Investments foreig
27、n currency purchase=Chapter Concepts SummarynSurplus units channel investments to securities issued by deficit unitsnDebt securities marketslMoney MarketlCapital MarketnMoney market securitieslShort-termlHigh qualitylVery good liquidity谢谢观看/欢迎下载BY FAITH I MEAN A VISION OF GOOD ONE CHERISHES AND THE ENTHUSIASM THAT PUSHES ONE TO SEEK ITS FULFILLMENT REGARDLESS OF OBSTACLES.BY FAITH I BY FAITH