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    Introduction To Financial Markets: Session 1 - Treasury & Funds Management (Ayaz Sheikh)

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    nixamani
    The document provides an introduction to financial markets, focusing on money markets and treasury management. It defines money markets as wholesale markets for short-term, highly liquid securities where banks and financial institutions can deposit excess liquidity or obtain short-term funding. Major players in money markets include commercial banks, central banks, non-bank financial institutions, corporations, and individuals. Money market instruments include treasury bills, bills of exchange, certificates of deposit, and commercial paper. Foreign exchange markets allow for the trading of foreign currencies, and determine exchange rates between currencies.

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    Introduction To Financial Markets: Session 1 - Treasury & Funds Management (Ayaz Sheikh)

    Uploaded by

    nixamani
    54 views12 pages
    The document provides an introduction to financial markets, focusing on money markets and treasury management. It defines money markets as wholesale markets for short-term, highly liquid securities where banks and financial institutions can deposit excess liquidity or obtain short-term funding. Major players in money markets include commercial banks, central banks, non-bank financial institutions, corporations, and individuals. Money market instruments include treasury bills, bills of exchange, certificates of deposit, and commercial paper. Foreign exchange markets allow for the trading of foreign currencies, and determine exchange rates between currencies.

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    Session 1

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    The document provides an introduction to financial markets, focusing on money markets and treasury management. It defines money markets as wholesale markets for short-term, highly liquid securities where banks and financial institutions can deposit excess liquidity or obtain short-term funding. Major players in money markets include commercial banks, central banks, non-bank financial institutions, corporations, and individuals. Money market instruments include treasury bills, bills of exchange, certificates of deposit, and commercial paper. Foreign exchange markets allow for the trading of foreign currencies, and determine exchange rates between currencies.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    54 views12 pages

    Introduction To Financial Markets: Session 1 - Treasury & Funds Management (Ayaz Sheikh)

    Uploaded by

    nixamani
    The document provides an introduction to financial markets, focusing on money markets and treasury management. It defines money markets as wholesale markets for short-term, highly liquid securities where banks and financial institutions can deposit excess liquidity or obtain short-term funding. Major players in money markets include commercial banks, central banks, non-bank financial institutions, corporations, and individuals. Money market instruments include treasury bills, bills of exchange, certificates of deposit, and commercial paper. Foreign exchange markets allow for the trading of foreign currencies, and determine exchange rates between currencies.

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    Introduction to Financial Markets

    Session 1 Treasury & Funds Management (Ayaz Sheikh)

    Financial Markets
    What is a market?
    Financial Markets generate prices whenever securities are bought and sold.

    Major markets are money markets, capital markets and FX markets Markets do not exist in isolation.

    Why do financial markets matter


    Price discovery and asset valuations;
    Markets brings together buyers and sellers of financial assets which brings about price discovery of such assets. This in turn facilitates the overall valuation of asset portfolios.

    Capital Opportunities;

    Short Term financing Investment Opportunities Financial risk management;


    Derivatives

    Capital raising using equity, debt or other financial instruments

    Money Markets - Characteristics


    Term: Mostly Short Term i.e. less than a year Security: Depends upon the issuer Liquidity: Good Volatility: Low since the term is short Expected Return: Relatively low

    Money Markets - Definition


    Money Market is a whole sale market for short-term, highly liquid securities. It serves as an avenue through which banks and financial institutions can offload their excess liquidity or meet their shortterm funding requirements. To the government an organized MM represents a means for it to implement its monetary policies in an efficient manner. It provides it with a liquid market for securities through which it can finance its own borrowing requirements. Includes money and near money e.g. Cash and T-Bills.

    Money Markets - Players


    Commercial Banks Central Banks NBFIs Corporations Individuals

    Commercial Banks
    Their role can easily be envisaged by taking a look at their assets and liabilities

    Commercial Banks
    Why do Commercial Banks operate in Money Market:
    To maintain liquidity & solvency of banks To use excess funds so that they produce the highest possible return To borrow necessary funds at the lowest cost To meet regulatory requirements.

    Central Banks
    In most economies the government regulates the Monetary System Lender of last resort Their core job is not limited to printing money, they also play actively in the money market Tools available to Central Bank to influence Monetary Policy are:
    Buying & Selling of Government Securities through Open Market Operations (OMO) Discount Rate Changing Reserve Requirements

    Money Markets - Instruments


    T-Bills Bills of Exchange CDs Commercial Paper

    FX Markets
    The foreign exchange market is the market in which foreign currency is traded In the spot market, parties contract for delivery of the foreign exchange immediately (upto t+2). In the forward market, they contract for delivery at some point, such as three months in the forward. Market trades upto 1Y locally. In the option market, they enter a contract that allows one party to buy or sell foreign exchange in the future, but execution is not mandatory right not an obligation. Most of the trading is among banks, either on behalf of customers or on their own account. The counterparty to the transaction could be another dealer, another financial institution, or a non-financial customer. That the dollar is usually used as a vehicle currency i.e. someone wanting to go from the Malaysian ringgit to the South African rand passes through the dollar on the way.

    FX Markets
    The exchange rate is the price of foreign currency. For example, the exchange rate between the British pound and the U.S. dollar is usually stated in dollars per pound sterling ($/ ); an increase in this exchange rate from, say, $1.80 to say, $1.83, is a depreciation of the dollar. The exchange rate between the Japanese yen and the U.S. dollar is usually stated in yen per dollar (/$); an increase in this exchange rate from, say, 108 to 110 is an appreciation of the dollar. Some countries float their exchange rate, which means that the central bank does not intervene, and the price is instead determined in the marketplace by supply and demand. Some regulators, instead of floating, fix their exchange rate, which means that the governments central bank is an active trader in the foreign exchange market. To do so, the central bank buys (or sells) foreign currency depending on which is necessary to peg the currency at a fixed exchange rate with the chosen foreign currency. Still other countries follow some regime intermediate between pure fixing and pure floating. Many central banks practice managed floating, whereby they intervene in the foreign exchange market by leaning against the wind. To do so, a central bank sells foreign exchange when the exchange rate is going up, thereby dampening its rise, and buying when it is going down. The motive is to reduce the variability in the exchange rate.

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