The Money Markets Handbook E-Book

Moorad Choudhry

• Herausgeber: John Wiley & Sons
• Kategorie: Fachliteratur
• Sprache: Englisch

Seitenzahl: 542

Veröffentlichungsjahr: 2011

Beschreibung

In The Money Markets Handbook Moorad Choudhry provides, in one comprehensive volume, the description, trading, analysis and calculations of the major markets around the world, providing worked examples and exercises throughout to provide a landmark publication on this important topic. Unique features, including a list of conventions and trading rules in virtually every market in the world, means that this book is relevant to virtually every money market in the world. * Includes an in depth treatment of repo markets, asset and liability management, banking regulatory requirements and other topics that would usually be found only in separate books * Written with clarity in mind, this book is vital reading for anyone with an interest in the global money markets * Features coverage of derivative money market products including futures and swaps, and the latest developments not covered in current texts

Leseprobe

Contents

Foreword

Preface

About the Author

Introduction to the money markets

Financial Transactions

Characteristics of the money market

Money market conventions

Chapter 1: The money markets

Introduction

Securities quoted on a yield basis

Certificates of Deposit

US Dollar market rates

Securities quoted on a discount basis

Commercial paper

Asset-Backed Commercial Paper

Extendable Note commercial paper

Conduit structuring

Commercial paper dealing sheet

Money market screens on Bloomberg

BBVA money market rate screens on Bloomberg

Appendices

Chapter 2: Foreign exchange markets

Spot exchange rates

Forward exchange rates

Chapter 3: Floating-rate notes

Floating-rate note conventions

Yield measurement

Inverse / reverse floating-rate notes

Appendix 3.1: FRN discount margin using discount factor

Chapter 4: Repo instruments and structured funding vehicles

Introduction to repo

Uses and economic functions of repo

Repo mechanics

Bloomberg screens

Basket repo

Synthetic repo via the Total Return Swap

Other repo structures

Pricing and margin

Legal issues

The United Kingdom gilt repo market

Repo market structures

Structured funding vehicles

Asset-backed MTN programme

Combined Note and Total-return swap funding structure

Further synthetic repo structures used for liquidity and balance sheet management

The synthetic ABCP conduit

Multi-SPV synthetic conduit funding structure

Replacing the liquidity line: the Committed Repo facility

Appendices

Chapter 5: Money market derivatives

Forward rate agreements

FRA mechanics

Forward contracts

Short-term interest rate futures

The TED Spread

Using Microsoft Excel to check the market forward rate

Interest-rate swaps and Overnight-index swaps

Zero-coupon swap pricing

Appendix 5.1: Calculating futures strip rates and implied swap rates

Chapter 6: The money market yield curve

Using the yield curve

Yield to maturity yield curve

The par yield curve

The zero-coupon (or spot) yield curve

The forward yield curve

The Term Structure

Chapter 7: Asset and liability management

Introduction

The ALM desk

Liquidity and interest-rate risk

Critique of the traditional approach

The cost of funding

Securitisation

Chapter 8: Bank regulatory capital

Introduction

Banking Regulatory Capital Requirements

Capital adequacy requirements

Action in the event of failure

The Basel II Accord

Basel II framework

Appendices

Appendix

Glossary

Index

Copyright © 2005 Moorad Choudhry

Published in 2005 by John Wiley & Sons (Asia) Pte Ltd

2 Clementi Loop, #02-01, Singapore 129809

All rights reserved.

No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning or otherwise, except as expressly permitted by law, without either the prior written permission of the Publisher, or authorization through payment of the appropriate photocopy fee to the Copyright Clearance Center. Requests for permission should be addressed to the Publisher, John Wiley & Sons (Asia) Pte Ltd, 2 Clementi Loop, #02-01, Singapore 129809, tel: [phone], fax: [phone], e-mail: [email protected].

The views, thoughts and opinions expressed in this book are those of the author in his individual private capacity and should not in any way be attributed to KBC Financial Products or to KBC Bank N.V., or to Moorad Choudhry as a representative, officer, or employee of KBC Financial Products or KBC Bank N.V.

Whilst every effort has been made to ensure accuracy, no responsibility for loss occasioned to any person acting or refraining from action as a result of any material in this book can be accepted by the author, publisher or any named person or corporate entity.

No part of this book constitutes investment advice and no part of this book should be construed as such. Neither the author nor the publishers or any named individual or entity is soliciting any action, response or trade in response to anything written in this book.

The material in this book is based on information that is considered reliable, but neither the author nor the publishers warrant that it is accurate or complete, and it should not be relied on as such. Opinions expressed are current opinions only and are subject to change. The author and publishers are not soliciting any action based upon this material. Moorad Choudhry and any named person or entity may or may not have a position in any capital-market instrument described in this book, at the time of writing or subsequently. Any such position is subject to change at any time and for any reason.

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Library of Congress Cataloging-in-Publication Data

0470-82150-7

For every lost opportunity. . .

Foreword

The book you are about to read is filled with a ton of information on the world of Money Markets. It will give you all the technical knowledge you will need. There is another aspect to this business and perhaps to all careers, that should be mentioned and has personally affected me – attitude and luck.

Attitude is something that can separate good from great. Usually, given 2 people with the same technical skills, and educational background, attitude can and will make the difference.

I have often thought of the money market world as a place where many people start a career in the financial arena. Very quickly one finds out in this arena – a traditional high volume and low margin business – that hustle, stamina and a willingness to work in a team-oriented atmosphere are a must. It is also imperative that you realize that you are part of something bigger, much bigger in the financial world. But, you have to be willing to pay the price and the price is high. You always need to go the extra mile. To be willing to work and keep on working even when things are tough. Let’s face it, a bear market, a repo squeeze, or a credit crunch can take their toll. A good example of this is what happened on Sept 11, 2001. Financial markets were in disarray and the short end of the market needed to play its part to keep the liquid short-dated markets flowing. The job was done with excellence. I was never so proud to be a part of this business as I was during this particular time. Watching people numbed by the tragic events, carry out their jobs until everything was in order, is so very typical of the money market person. You stay; you focus; you finish the job at hand.

Many of you will use the money market arena as a stepping stone to a career in other financial settlings. . . But many of you, myself being a good example, will find the challenges and joy of this arena to be one that lasts an entire career. To do your job and help others do theirs. You have to be willing to do the right thing ALL THE TIME and to believe that what you are doing IS important. You will listen to your clients, pay attention to what is important to them and then try to execute as they want you to – this will allow you to be a hallmark of client service that lives in the short end. You will always remember that it’s about the client. Do this and learn the money market world, so it can spring you to personal greatness. Learn about partnering and be a great partner. This world is not better because of people working in silos. It is great because 1 plus 1 equals 3.

I have found my career in the money market world to be one that has given me all the personal and professional challenges I needed to grow. Trading or sales skills are necessary, as are client skills. But two other areas worked in my favor. One is attitude, which I have already mentioned. The other was luck. Yes, my career in money markets over the last 20-plus years was also laced with about as much good luck as one could ever hope. Maybe luck for me could be traced back to my attitude and maybe my attitude was there because of the upbringing or my playing sports when I was growing up. Who knows what forces really do play a part in this. . .? Whatever it was, I am deeply grateful. My suggestion is not to discount the value of luck in your future – it will play a part. I hope it’s all good. . . .

I am also deeply grateful to all the people I have met along the way. There have been so many. Many of them have worked alongside me for all those years and many others have gone on to other paths in life. To them, I wish all the joy and challenges life has to offer.

To those just starting out on their journey, studying this excellent book and taking along the right attitude, will get you on your way.

Good luck on your journey !!

Bob Beehler

MD, European Short-Term Fixed Income

JPMorgan Chase Bank

Preface

The money markets are an important element of the debt capital markets, and are defined traditionally as being the market in traded debt securities of up to one year’s maturity from date of issue. Money market instruments are used by all users and suppliers of short-term capital, and the market is the vital conduit through which the participants are brought together. This book is a succinct and hopefully clear review of the main money market securities, both cash and off-balance sheet, traded around the world. This includes cash market instruments such as CDs and T-bills, together with short-dated derivatives like Libor futures and forward-rate agreements. We have expanded the coverage however, to include a review of bank asset and liability management, or ALM, which is an essential part of banking, and regulatory capital issues. This subject has been developed considerably beyond bank short-term liquidity management, and we consider the main points here. This part of the book will therefore be useful those who are involved in bank and security house money-market trading, or those involved with bank asset & liability committees. In a separate chapter we review a substantial topic in its own right, the bond repo markets; this covers the mechanics of repo and its uses as part of the bond and money markets. More sophisticated products that are also part of the markets, such as asset-backed commercial paper conduits and basket Total Return Swaps, are also described. In short, we aim to provide comprehensive detail on the full range of products that might be employed on the Treasury desk of a global integrated banking institution.

As well as a description of the instruments themselves, where possible we include illustrations, including Bloomberg screens where appropriate, as well as worked examples. The objective is to present a succinct account of the mechanics of the main products that make up the money markets.

This book is aimed at those with little or no previous understanding of or exposure to the money markets, but in any case all those in front office, middle office and back office banking and fund management departments. Others including corporate treasurers, risk management and legal department staff may also find the contents useful.

The book is organised into eight chapters. These cover money market instruments including:

cash products such as Certificates of Deposit, as well as repo;derivative instruments such as Forward Rate Agreements and overnight-index swaps;hybrid instruments such as Total Return Swaps, used for funding purposes, and other structured funding instruments;floating-rate notes;commercial paper conduits and asset-backed conduits.

There are also chapters on issues of importance to money market participants, such as securitisation structures used for funding purposes.

In addition there is a chapter on the yield curve, and spot and forward rates. For beginners to the subject we introduce the basics of financial market arithmetic in an Appendix at the back of the book.

Comments on the text are welcome and should be sent to the author care of Wiley Asia.

Website

Further research on the debt capital and money markets can be found on the dedicated fixed income website at

www.YieldCurve.com

This site also publishes market research and conference presentations produced by the author and other YieldCurve.com associates.

Acknowledgements

Big, big thanks to Bob Beehler at JPMorgan Chase for the excellent Foreword, it is a privilege to know you.

Thanks to Anne Azencot at Cadwalader for sterling work when we were structuring and closing the mighty conduit that was Picaros Funding pic -awesome stuff. Imagine that, Europe’s first ever synthetic asset-backed commercial paper conduit! What a team, eh? © Also more Picaros big thanks to Nick Procter, Lorraine Carey and Padraic Doherty at JPMorgan Chase, Paul Kerlogue at Moodys, Andre Vollmann at S&P and Serj Walia, Rupert Page, Dave Plume, Alex Rafinski, Jasmine Matthews, Andrew Dominus and Anne Carter at KBC FP.

Thanks big time to Johanna Foley, John Kodweis, Peter Eisenhardt and Eric Subliskey at JPMorgan Chase, they all know why, a “nice one!” thanks to Stewart Cutler at Merrill Lynch (there should be a picture of you in the dictionary under “sales and marketing”!), Bill Kearns at Citigroup and Peter Holden at Merrill Lynch.

A pleasure to deal with the interest-rate derivatives desk at KBC Bank Brussels, namely Jean-Marc Hendrick, Koen Van Baarle, Philip Desmet and Francis (again!), and also the repo desk at HSBC in London, that’ll be my man Adnan Jaffery. Salaam!

Thanks to Guillermo Monroy at BBVA in Madrid for help with their Bloomberg screens.

Thanks to Dan Cunningham, Gavin Allan and Lee Crooks at KBC Bank London for inviting me to assist them with their annual defence of the Kelvin Watson trophy, a pleasure and an honour to be asked. . .and happy to see we retained the title! I am available for selection at right-back next year too, if you’re wondering. . .

As ever, thanks to Del-Boy at King & Shaxson Bond Brokers Limited. . .it’s been a long time since we traded them, but I am always grateful for the times you told me without a moment’s delay what the settlement figure was, for a new-issue CD I’d just bought. . .

Thanks to Paul Lim for top-quality typesetting, and to Malar at Wiley Singapore for help with production, saves me loads of headache.

Finally, thanks to Mark at Zulu Tattoo, you are an artist and true master of your craft!

KBC FP Acknowledgements

Big, big thanks to the No. 1 boys on the trading floor, the Equity Derivs desk, that’ll be Haris Kessaris, Frank Spiteri, Hirak Chakravorty, Michiel Symoens and the lads, cheers for everything guys. . . thanks for looking after me!

Many thanks to Nick Bulloch for making things easier to book and reconcile than they otherwise would have been! Imagine? Sophis? Piece of cake. . .

Jason Feasey – respect. Thanks to Pierre Iceta, Niall Considine, Craig Wotherspoon, Andrew Oliver, Alex Palmer, Sarah Robinson, Caroline Bailey, Daniel Bond, Richard Ward, Giles Lamb, Julie Butts, Bruno Pajusco, Simon Bourne and Oliver John. It’s a pleasure to work with you chaps. . .

Treasury Ops team of Matt Eldred, Brian Norwood, Mark Burgess and Todd Bose, lovely to know you are Classics scholars, thanks for everything, if it moves we can settle it. . .

Jatin, Mark, Richard, Peter and Andrew – when are we writing a book on Hedge Fund Derivatives? Now that would be a ground-breaking work. . .

And finally massive thanks to Justin Rockberger – a coach and team leader par excellence - for letting me prolong my City football career, it’s a pleasure and a privilege to turn out on the same pitch as you, Nick Williams, Terry Williams, Ray Saunders, Jamie Sambruck and the rest of the lads.

Special thanks

Paula Jacobsen, you’re the best thing that ever happened to me. . .

Thanks and respect to Mr Tim Leonard, Harley Street Wl for looking after my eyes.

Thanks to Robbie Earle for his autograph confirming my honorary membership of the Crazy Gang.. .surely your goal in France 98 is one of the best ever by a Wimbledon player in the World Cup?!

Like that great centre-half Stuart Medlen once said, football is like your youth – once it’s over, it’s over. . .so thanks to Tony Fulling over at JPMChase for the continued invite to play! Thanks for the memories. . .

A big thank you to Monica Schnitzer for recording that CD of Lloyd Cole B-sides for me, it’s fabulous and brilliant. . .it’s always great to hear songs by a favourite artist for the first time even when they’re old recordings.. .thanks again.

Diane Spranger at NatWest Premium Banking Unit in Richmond (that’s a long way from Esher!), thanks for looking after my banking needs. You are an absolute darling, I owe you lunch.

All the best.

Moorad Choudhry

Surrey, England

September 2004

When You Trusted Me

I said I’d never let you down

I was wrong

I said I’d do anything for you

But I’d say anything to get what I want

And you’re everything I want

Everything I want

How could I?

Just when you trusted me

I broke my promise

Now my words hold nothing for you

I could pick up the pieces

But I can’t put them back together

Without you

I’m back where I started

Without you

How could I?

Just when you trusted me

I only get one chance. . .

Mighty Mighty

from Sharks

(Chapter 22 Records)

1988

Reproduced with permission.

About the Author

Moorad Choudhry is Head of Treasury at KBC Financial Products in London. He previously worked at JPMorgan Chase Bank, Hambros Bank Limited, ABN Amro Hoare Govett Limited and the London Stock Exchange. He was a money markets trader at ABN Amro Hoare Govett Limited, where he ran the Treasury, and money markets desk for the gilt-edged market making division.

Dr Choudhry was educated at Claremont Fan Court school in Esher, Surrey, at the University of Westminster, the University of Reading, Henley Management College and Birkbeck, University of London. He is a Visiting Professor at the Department of Economics, London Metropolitan University, a Senior Fellow at the Centre for Mathematical Trading and Finance, Cass Business School, and a Fellow of the Securities Institute, London. He is on the Education Advisory Board of the ISMA Centre, University of Reading – and he knows Michael Nicoll.

Criticism didn’t really stop us and it shouldn’t ever stop anyone, because critics are only the people who can’t get a record deal themselves.

— Paul McCartney, The Beatles Anthology, Cassell & Co., 2000, p.96

Money Markets: An Introduction

The money markets are part of the global financial system. The various markets that make up this system are all, in one form or another, channels through which fund flows between the users and the suppliers of capital move. This flow of funds takes place in different markets depending on the characteristics of the funds themselves and the needs of the market participants. The money market is where transactions in short-term funds takes place. This is the borrowing and lending of funds that have a repayment: date of within 12 months of the loan start date. However the money market is not just made up of loans or indeed of cash products. As we shall see, there is a wide range of instruments used in the market, both cash and derivative, and it is these products and the uses to which they are put that is the focus of this book.

So, the money market is the centre in which market participants, which can be governments, banks, other corporate institutions, fund managers or individuals, meet to transform a short-term shortage (or surplus) of funds into a surplus (or shortage). As such the money market enables market participants to manage their liquidity positions. A market instrument that has a maturity of one year or less is defined as a money market product. Instruments with maturities greater than one year, such as bonds, are traded in the capital market.

The suppliers of funds in financial systems worldwide are generally commercial banks, as well as savings institutions such as money market mutual funds. Other institutions such as local authorities and corporations are also long of cash at certain times. The borrowers of funds include the government, banks (again), local authorities and corporations (also, again).

In terms of trading volumes the money markets are the largest and most active market in the world. As money market securities are securities with maturities of up to twelve months, they are short term debt obligations. Money market debt is an important part of the global financial markets, and facilitates the smooth running of the banking industry as well as providing working capital for industrial and commercial corporate institutions. The diversity of the money market is such that it provides market users with a wide range of opportunities and funding possibilities, and the market is characterised by the range of products that can be traded within it. Money market instruments allow issuers to raise funds for short term periods at relatively low interest rates. These issuers include sovereign governments, who issue Treasury bills, corporates issuing commercial paper and banks issuing bills and certificates of deposit. At the same time investors are attracted to the market because the instruments are highly liquid and carry relatively low credit risk. The Treasury bill market in any country is that country’s lowest-risk instrument, and consequently carries the lowest yield of any debt instrument. Indeed the first market that develops in any country is frequently the Treasury bill market.

Although the money market has traditionally been defined as the market for instruments maturing in one year or less, frequently the money market desks of banks trade instruments with maturities of up to two or three years, both cash and off-balance sheet.1 In addition to the cash instruments that go to make up the market, the money markets also consists of a wide range of over-the-counter off-balance sheet derivative instruments. These instruments are used mainly to establish future borrowing and lending rates, and to hedge or change existing interest rate exposure. This activity is carried out by both banks, central banks and corporates. The main derivatives are short-term interest rate futures, forward rate agreements, and short-dated interest rate swaps. But as we shall see, other derivatives like Total Return Swaps are also used.

Financial Transactions

Irrespective of the market we are speaking of, all financial systems exist to facilitate one basic transaction, the moving of funds from cash-rich entities to cash-poor ones. This transaction involves the exchange of money for financial assets, or an interest in a financial asset. This exchange can be undertaken directly between participants, via an intermediary or indirectly.

Direct finance

This involves two parties, one of which lends funds directly to the other for an agreed term and rate of interest. The transaction is shown at Figure 1. The funds can be lent in exchange for security (known as collateral) or on an unsecured basis. Direct financing is the simplest method undertaking a financial transaction. Its drawbacks are that parties must know about each other and each other’s requirements; they must also possess sufficient information on their counterparties such that they are satisfied in entering into the transaction. For this reason, direct financing, while very common among larger institutions or where the central government is involved, often gives way to financing via intermediaries.

Figure 1 Direct financing

Financing via intermediary

In terms of volume, the majority of money market transactions are carried out in semi-direct form, via intermediaries. We include banks among our list of intermediaries, which can be distinguished into two types:

Brokers: a broker simply acts to bring lenders and borrowers together, and charges a commission for so doing. However the involvement of a broker introduces greater transparency and information into the market;Market makers: known as dealers in the US market, who also serve as intermediaries between borrowers and lenders but take the cash position onto their own books and charge a two-way price in this cash to all other market participants. As such dealers run a risk exposure position in the cash they own directly, as their profit depends on the value of the cash, which fluctuates in line with market dynamics and supply and demand.

Of course, the same institution can act in both capacities, according to who its counterparties are or what market it is trading in. The transaction is illustrated in Figure 2.

Figure 2 Intermediary financing

Indirect financing

The existence of an active secondary market in money market securities reflects the extent of indirect financing. This covers a number of areas, such as banks issuing their own securities to fund their loans to corporates and individuals, and the trading of these securities after the initial finance has been raised. Financial intermediaries that are part of this market include commercial banks, insurance companies, credit institutions such as automobile manufacturer credit arms, finance companies, savings and loan associations (known as building societies in the United Kingdom), pension funds, mutual funds and so on. Their role in the market is to act essentially as both borrowers and lenders themselves in a way that serves the market’s ultimate borrowers and lenders. Table 1 lists the types of firms involved in indirect financing.

Table 1 Financial institutions and intermediaries active in the money markets

Deposit-taking institutionsContractual institutionsWholesale market counterpartiesCommercial banksLife insurance companiesInvestment banksRetail banksLife assurance companiesSecurities housesNon-banking institutions:Pension fund managers(“Broker-Dealers”)Savings & Loan(“Building Societies”)Mutual funds(“Unit Trusts”)BrokersCredit UnionsInvestment trust companiesMutual funds (“Unit Trusts”)– Money market fundsFinance companiesGovernment lending institutions

Characteristics of the money market

The money market, worldwide, acts as a channel through which market participants exchange financial assets for cash, or raise cash on a secured and unsecured basis. Its key defining point is that it serves short-term needs. This is the short-term financing needs of participants who are short cash, and the short-term investment needs of participants who are temporarily long cash. Figure 3 shows a stylised structure of the money market as it would exist in most countries.

Figure 3 The structure of the money market

Interest rates set in the money market (well, one key interest rate) act as benchmarks and guidelines for all other rates used. The importance of the money markets to this activity is often over-looked, but cannot be denied.

The size of the market means that it, in most countries and certainly in all developed economies, carries considerable breadth and depth. It is possible to transact very large volumes of business and not observe this to impact the money market in any way. Like most financial markets these days, money market dealing is “over-the-counter”, meaning it is not conducted on an exchange but over the telephone or computer terminal.

Interest rates in the money market – the rates at which participants borrow and lend funds – are set by the market and reflect a number of factors, from macroeconomic issues such as global supply and demand, to more market-specific issues such as liquidity and transparency. There are a large number of interest rates, for different products and different counterparties. The cornerstone of the market’s various rates is the Treasury Bill rate. As we see in Chapter 1, Treasury bills are issued by the government to raise short-term cash (the typical maturity is 90 days). Because the bills are backed by the government, they carry no (or little) default risk. Hence the rates payable on these bills are the lowest in any market. All other rates in the market (and the bond market) will be at a positive spread over the T-bill rate.

In the following chapters we look in detail at the various instruments that go to make up the money markets. For beginners, we include a primer on financial markets arithmetic in an Appendix at the back of the book. This is required background for an understanding of interest rate mechanics.

Money market conventions

We will see from the following pages that many money market instruments trade under similar market conventions. For example, for most currencies the basis used to calculate interest on a loan assumes a 360-day year, although sterling is an important exception. Again, while it is the norm for many currencies to float freely, their exchange rates to other currencies set by market supply and demand, some other important currencies are pegged to (usually) the US dollar and move with that currency. A very small number of currencies are not convertible and cannot be traded in the market.

Table 2 shows thfe characteristics of a sample of world currencies. It serves to highlight the individual detail differences that exist in the market. Terms such as “day-count” and “value date” will be fully explained in the next chapters.

Table 2 Selected global currency conventions

Source: Bloomberg

Practitioners with access to Bloomberg can look up individual currency details by selecting:

[Ticker] [Currency yellow key] DES <Go>.

We show this page for Australian dollars, Brazilian reals and Egyptian pounds at Figures 4, 5 and 6 respectively.

Figure 4 Bloomberg page DES for Australian dollars

© Bloomberg L.P. Used with permission

Figure 5 Bloomberg page DES for Brazilian real

© Bloomberg L.P. Used with permission

Figure 6 Bloomberg page DES for Egyptian pound

© Bloomberg L.P. Used with permission

It may sound corny,

But you were all that ever mattered,

And I can still hear your laughter,

As it echoes through the years.

You see, I never realised,

Until our demise

How much you meant to me. . .

No, I never realised.

Until our demise,

Just how much you meant to me. . .

— Orange Juice, “All That Ever Mattered”, from The Third Album (Polydor) 1984

1The author has personal experience in market-making on a desk that combined cash and derivative instruments of up to two years maturity as well as government bonds of up to three years maturity. In his current capacity on the Treasury desk he is part of trades in loans and deposits and overnight-index swaps of up to 18 months maturity.

CHAPTER 1

The Money Markets

Part of the global debt capital markets, the money markets are a separate market in their own right. Money market securities are defined as debt instruments with an original maturity of less than one year, although it is common to find that the maturity profile of banks’ money market desks runs out to two years.

Money markets exist in every market economy, which is practically every country in the World. They are often the first element of a developing capital market. In every case they are comprised of securities with maturities of up to twelve months. Money market debt is an important part of the global capital markets, and facilitates the smooth running of the banking industry as well as providing working capital for industrial and commercial corporate institutions. The market provides users with a wide range of opportunities and funding possibilities, and the market is characterised by the diverse range of products that can be traded within it. Money market instruments allow issuers, including financial organisations and corporates, to raise funds for short term periods at relatively low interest rates. These issuers include sovereign governments, who issuer Treasury bills, corporates issuing commercial paper and banks issuing bills and certificates of deposit. At the same time investors are attracted to the market because the instruments are highly liquid and carry relatively low credit risk. The Treasury bill market in any country is that country’s lowest-risk instrument, and consequently carries the lowest yield of any debt instrument. Indeed the first market that develops in any country is usually the Treasury bill market. Investors in the money market include banks, local authorities, corporations, money market investment funds and mutual funds and individuals.