What is the Money Market?

- Money market is an organized e-market where participants can lead and borrow short-term,
high-quality debt securities with average maturities of one year or less.
- It exist to allow government and banks and large institutions to sell short-term securities to fund
short-term cash flow needs.
- It allow individual investors and large institutions to invest excess cash in a low-risk market

How does Money Market Work?

Large Corporation

- Those with short-term cash flow needs, can borrow from the market directly through their
dealer; those with excess cash can invest

Small Companies

- Excess in cash can invest through money market mutual funds

- Money market mutual fund is a professionally managed fund that buys money market
securities on behalf of investors.

Individual Investors

- Invest through their money market bank account or money market mutual fund

Types of Instruments Traded in the Money Market

1. Investors- issue or invest in the Government issued T-bills

2. Banks – issue certificate of deposit

- can create short-term mortgage-backed securities

- also issues a product called a Banker’s Acceptance

3. Corporations –issues commercial paper

4. Repurchase Agreements – a short-term form of borrowing that involves selling a security with an
agreement to repurchase it at a higher price at a later date.

Functions of Money Market

- It contributes to the economic stability and development of a country by providing short-term

liquidity to governments, commercial banks, and other large organizations.

1. Financing Trade – provides financing to local and international trades in need of short-term funds;
international traders can benefit from the acceptance houses and discount markets

2. Central bank policies – central bank can perform its policy-making function efficiently through the
money market to ensure a healthy financial system

3. Growth of Industries – allows businesses to obtain short-term loans to finance their working capital
need through commercial paper and finance bills.
4. Commercial banks self-sufficiency – provides commercial banks with a ready market where they can
invest excess reserves and earn interest while maintaining liquidity

Bond Market plays an important role in our economy. Bigger than stock market.

- It is made up of issuers, like Federal Government and Municipalities and Corporations. Looking
to borrow money from investors
- These issuers use this borrowed money for different reasons.
- It begins with a bond transactions between an issuer and an investor. This transaction helps the
issuer raise money to finance projects and the investor benefits by receiving interest on their
investing capital.

1. Federal Government – use it to make Social Security payments of fund the construction of
infrastructure like roads.

2. City or Town – use the money to fund local projects, like building a new airport or building schools.

3. Corporations – to fund projects

Pang pa hype: Assemble the picture or Charades

Members:

Abonales (Risk to Inflation)

Kinanahan ( Yield to Credit rating)

Pedrosa (Domestic money market)

Arriola (Central Bank Role and Discuss the Key ECB Interest Rates Box 7.3)

Sensis (Domestic Bond Market from Government to Corporate Bonds)

Catipay (Domestic Bond Market from Hybrid to Islamic Bonds)

Morgado ( Internationa Markets: Background of Eurocurrencies to The International Debt Crisis)

Mapang (Internationa Markets : From Eurobond Market to Coupon Stripping)

Romaguerra (Internationa Markets: From Other Variations to Medium-term Notes)

Grisola (Internationa Markets: From the money markets to Participants and Top Trades)

Chapter 7 : The Money and Bond Market

1. The Rate of Interest (Abonales Risk to Inflation)

- Risk

- Maturity

- Expectations

- Liquidity

- Supply and Demand

- Inflation

- Yield

- Par Values

- Interest Yield

- Gross Redemption Yield

- Accrued Interest

2. Credit ratings

3. Domestic Money Markets

- Call Money

- The Interbank Market

- Money Market Securities

4. Central Bank Role

5. Domestic Bond Markets

- Government Bonds

- Local Authority/Public Sector Bonds

Mortgage and Asset-backed bonds

Corporate Bonds

Hybrid Bonds

Foreign Bonds

Junk Bonds (High-yield Debt)

Islamic Bonds

6. International markets

- Background: Eurocurrencies

- The Syndicated Loan Market

- The International Debt Crisis

- The Eurobond Market

- Coupon Stripping

- Other Variations

- The Money Markets

-Repors

- Participants and Top Trades

7. Summary