instruments of international money market

8/2/2019 Instruments of International Money Market

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Market for short term financing

Investment instruments that are traded or

issued internationally.

Core of this market is euro currency

market.

Introduction



Reconcile the cash needs of deficitunits with needs of surplus units.

High degree of safety ofprincipal

No central location

Features Of International

Money Market



Banker’s acceptanceand

Letter of credit

Euro currencytime deposits and

certificate of deposits

Euro notes and eurocommercial papers

Medium term notesand deposit notes

Floating ratenotes

INSTRUMENTS



Banker’s acceptance arise from international

trade.

International trade transactions are financed by

banks.

Obligation by a specific bank to pay a certain

amount on a certain date in the future.

Banker’s Acceptance



Legal commitment on the part of the bank

in which the bank promises the exporter topay on behalf of the importer upon

presentation of documents conveying title

of the goods.

Letter of credit



Non – negotiable time deposit

Cancelling a time deposit is expensive, so investor

sacrifices liquidity.Those who want greater liquidity, invest in shorter

liquidity.

Eurocurrency certificate of

deposits

It is a time deposit that is transferable.

Eurocurrency time deposits



Short term instruments

Unsecured promissory notes issued by corporations

and banks.

Euro notes encompasses note issuance facilities. It

can be:

Euro Notes and Euro

Commercial Papers

• With the support of a medium termcommitment by a group of banks toprovide funds.

Underwritten

• Without the support of a mediumterm commitment by a group of

banks to provide funds.

Non -Underwritten



Issued by international banks.

Fixed rate corporate bonds but of generally shorter

maturityRegarded by institutional investor as a temporary

investment that can be designed to suit particularinvestor’s requirements.

MTN financing is often described as “InvestorDriven.”

Problem with MTNs is lack of liquidity.

Yield calculated in the same way as bond yield.

Medium Term Notes



Instrument was introduced in early 1970’s.

Interest rate floats.

Pays a three or six month’s interest rate set ABOVE, AT or

BELOW LIBOR (London inter bank offered rate). Interest rate set every 3 or six months to a new level based on

prevailing LIBOR level at the reset date.

LIBOR – It is the average interest rate which the leading

banks in London charge when lending to other banks. It is abenchmark for finance all over the world.

Floating Rate Notes



Reference rate Margin

Coupon paymentfrequency

Reference rateperiod

Maturity

Features of FRNs

instruments of international money market

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