2015 Topic 5 Money Market 1 
Topic 5: The Money Market
Some key terms: treasury paper, commercial bill, bank bill facility, commercial paper (or promissory note), negotiable certificate of deposit. 25741 Capital Markets
1
Lecture content
1.
2.
3.
4.
5.
6.
7.
Money Market
Pricing
Impact of changing maturity and interest rate on security prices, yield to maturity, holding period yield.
Repos
Treasury Notes
Commercial Bills
Acceptor, Bill facility
Commercial Paper
Negotiable Certificates of Deposit
25741 Capital Markets
2
Learning Objectives
After studying the material in this topic you should be able to:
explain the differences and similarities between the securities traded in the money market. calculate the price of a money market security. describe the impact of changing yields and maturity on the price of a money market security. calculate the return from investing in a money market security. describe the role played by a bank in a bill facility. explain the importance of dealers and underwriters in the issue of commercial paper.
25741 Capital Markets
3
1. MONEY MARKET
The money market is an over-the-counter wholesale market.
Short-term interest rate securities are traded in this market. These securities:
have a maturity of less than one year (i.e. between 2 and 364 days). make only one payment, their face value at maturity.
Dealers quote yields rather than prices when trading in these securities.
Their price is less than their face value.
Two-way yields are quoted with the bid yield being higher than the offer yield.
Settlement can be open to negotiation between the parties involved but normally is on the same day as the trade and is done through Austraclear.
25741 Capital Markets
4
2. PRICING
Short-term securities are issued and traded at a price that is at a discount to their face value.
They are often referred to as ‘discount securities’.
As their only payment is their face value at maturity they can be priced using
Some key terms: treasury paper, commercial bill, bank bill facility, commercial paper (or promissory note), negotiable certificate of deposit. 25741 Capital Markets
1
Lecture content
1.
2.
3.
4.
5.
6.
7.
Money Market
Pricing
Impact of changing maturity and interest rate on security prices, yield to maturity, holding period yield.
Repos
Treasury Notes
Commercial Bills
Acceptor, Bill facility
Commercial Paper
Negotiable Certificates of Deposit
25741 Capital Markets
2
Learning Objectives
After studying the material in this topic you should be able to:
explain the differences and similarities between the securities traded in the money market. calculate the price of a money market security. describe the impact of changing yields and maturity on the price of a money market security. calculate the return from investing in a money market security. describe the role played by a bank in a bill facility. explain the importance of dealers and underwriters in the issue of commercial paper.
25741 Capital Markets
3
1. MONEY MARKET
The money market is an over-the-counter wholesale market.
Short-term interest rate securities are traded in this market. These securities:
have a maturity of less than one year (i.e. between 2 and 364 days). make only one payment, their face value at maturity.
Dealers quote yields rather than prices when trading in these securities.
Their price is less than their face value.
Two-way yields are quoted with the bid yield being higher than the offer yield.
Settlement can be open to negotiation between the parties involved but normally is on the same day as the trade and is done through Austraclear.
25741 Capital Markets
4
2. PRICING
Short-term securities are issued and traded at a price that is at a discount to their face value.
They are often referred to as ‘discount securities’.
As their only payment is their face value at maturity they can be priced using