TOPIC 2 : MONEY MARKET

TREASURY
BANKERS' BILLS (TB)
ACCEPTANCES (BA)
CERTIFICATES OF
DEPOSIT (CD)
6 MAIN INSTRUMENTS
REPURCHASE MONEY MARKET
AGREEMENTS
(REPO)
COMMERCIAL PAPER

EURODOLLARS

Bankers’ Acceptance is a
negotiable instrument or
time draft drawn on and
accepted by a bank.
Before acceptance, the
draft is not an
obligation of the bank.
Upon acceptance, which
occurs when an authorized
bank accepts and signs it, the
draft becomes a primary and
unconditional liability of the

If the bank is well known

The maturities on acceptances
normally range from 30 to 180
days
ACCEPTANCES (BA)
A banker's acceptance needs to
A negotiable time draft for
financing imports, exports or
other transactions in goods.
Especially useful when the
creditworthiness of a foreign
and enjoys a good
reputation, the expected
draft may be readily sold in
BANKERS'
Bankers’ acceptance are
considered very safe
assets, as they allow
traders to substitute the
bank’s credit standing for
Bankers’ Acceptance is a short-
term credit investment created
by non-financial companies and
guaranteed by a bank to make a
specified payment when it is due.
 They are issued with three-
month, six-month and one-year
maturities.

They are issued at a discount from

the face value.

Bank Negara Malaysia facilitates the

Treasury bills or T-bills are another
sale of treasury bills through
type of marketable money market
competitive auction.
security.
Malaysian treasury bills are issued
Issued by government when it wants on a weekly basis and auction is held
to borrow money to meet its short- TREASURY
one day before the issue date.
term cash needs. BILLS (TB)

The successful bidders are

Treasury bills are actively traded in determined according to the most
the secondary market. competitive yield offered.

The standard trading amount is RM5

million.
 Maturity term of a CD generally
ranges from one month to five
CD is a form of savings years.
certificate.
The certificate can be purchased
The bearer of a CD is entitled directly from commercial banks or
to receive interest. savings and loan institutions.

CDs can be issued in any The certificate is a non-tradable

denomination. security.

Interest rate on CDs is fixed CDs are not traded on any

over their stated maturity. exchange.

CDs are relatively low-risk debt

instrument.
CERTIFICATES OF
DEPOSIT (CD)

Commercial paper is unsecured,
It is short-term loan or promissory note .
It is issued by large companies.
The proceeds of commercial paper sales
used to finance working capital.
Issued at a discount.
COMMERCIAL PAPER
EURODOLLARS
Based on current market interest rates.
Average maturity of commercial paper is
between one and two months.
Maturities on commercial paper are usually
no longer than nine months.
Commercial paper is issued by a wide
variety of domestic and foreign firms,
including finance companies, banks and
industrial firms.
Eurodollars are deposits denominated
in U.S. dollars deposited in banks
outside the borders of the U.S.
International investors buy U.S.
dollars and deposit them in a bank
outside the U.S. and then use these
dollars to buy goods in the world
markets.
It has become convenient to
businessmen to use Eurodollars .
The term Eurodollars originated in Europe
(specifically London).
Eurodollars have very little to do with the euro
or European countries.
The average Eurodollar deposit is very large (in
the millions) and they have a maturity period of
Repurchase agreement (or repo) is a
legal contract between a borrower
and a lender.
Repo transactions involve sale of
securities at a particular price by a
repo seller to a repo buyer, whereby
the repo seller gives a commitment
on his part to repurchase the REPURCHASE
equivalent securities from the repo AGREEMENTS
buyer. The repo buyer also gives a
(REPO)
corresponding commitment to sell
the equivalent securities back to the
repo seller on a certain date and at a
certain price plus a stated interest
charge.

Both the date and the contract price

of the same transaction are fixed for
the duration of the transaction.