PRESENTED BY:Sarmad Samad

Azfer FirozKamran ShabbirHaris RehmanSarfaraz Junejo

MONEY MARKET

INTRODUCTION TO MONEY MARKET

1. TYPES OF MONEY MARKET

2. MONEY MARKET INSTRUMENTS

3. INVESTOR PREFERENCES FOR GOVERNEMNT SECURITIES

4. GOVERNMENT OF PAKISTAN DEBT AND INTEREST RATE LEVEL

INTERVIEWEES:

LAYOUT

The main purpose of money markets is to facilitate the transfer of funds.

Wholesale markets.

Money markets play a central role in the country’s financial system. They serve as the interface between the execution

of monetary policy and the national economies.

Serve public policy objectives:

1) financing public sector deficits

2) managing the accumulated government deficits

INTRODUCTION TO MONEY MARKETS

The structure and role of money markets can be influenced by:

-Financial deregulation

-International dimensions

Other functions of money markets:

-Fund raising;

-Cash management;

-Risk management;

-Speculation or position financing 

INTRODUCTION TO MONEY MARKETS

Interbank market

-Market through which banks lend to each other and manage their reserve positions.

-Banks deal as funds buyer and seller

-The major characteristics of the interbank markets are:

-The transfer of immediately available funds

-Short time horizons

-Unsecured transfers

-Interbank interest rates and interest rates in the traditional market are interconnected

-Interbank rate is determined entirely by the supply and demand of banks for funds.

DIFFERENT SEGMENTS OF MONEY MARKET

Primary market

-The securities are issued via a regularly scheduled auction process

-Competitive bids

-Non-competitive bids

Secondary market

-Active and liquid

-On-the-run issues.

Derivatives market

DIFFERENT SEGMENTS OF MONEY MARKET

Government Securities:

1) Treasury Bills

2) Pakistan Investment Bond

Repurchase Agreements (Repo and Reverse Repo)

Call and Clean Lending

MONEY MARKET INSTRUMENTS

Treasury Bills:-short term and highly liquid

-issued and backed by government no default risk

-form the benchmark default-free interest rates

-issued at a discount to their par or nominal value.

-sold to finance government budget deficit requirements.

-Government of Pakistan Market Treasury Bills (MTBs):-competitive bidding process

-interest is the difference between the purchase price of the security and what you get at maturity

- different maturities.-Minimum Denomination

MONEY MARKET INSTRUMENTS

Pakistan Investment Bonds:

-long term bonds

-sold through the State Bank of Pakistan via periodic auctions

-different tenors

-risk free investment at premium interest rates

-fixed semiannual coupon and repayment of principal at maturity

-Statutory Liquidity Requirement (SLR) eligible securities

-the minimum denomination of PIBs is Rs.100, 000.

-June 1998 the government stopped issuing Federal Investment Bonds.

-March 2000 ban on National Saving Schemes (NSS) changed the situation.

MONEY MARKET INSTRUMENTS

PAKISTAN REVALUATION RATE

 0-7

 8-1

5

 16-

30

 31-

60

 61-

90

 91-

120

 121

-180

 181

-270

 271

-365

 2 Y

EARS

 3 Y

EARS

 4 Y

EARS

 5 Y

EARS5

 6 Y

EARS

 7 Y

EARS

 8 Y

EARS

 9 Y

EARS

 10

YEARS

 15

YEARS

 20

YEARS

 30

YEARS

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

14.00%

PKRV

PKRV

continuous growth investors’ perception

Call and Clean Lending:-determination of KIBOR-call market in Pakistan is less developed Repurchase Agreements:1) REPO:-loan backed by securities-two legged transaction-may involve government securities, commercial papers and certificates of deposit. -short term2) Reverse REPO:-purchase of securities by one party from another with the agreement to sell them -to borrow securities and to lend cash

MONEY MARKET INSTRUMENTS

Guaranteed Repayment

Investment For Short Term

Higher Returns as compared to bank deposits

Accepted as Collateral

Liquidity

Easy Process of Investment

INVESTORS’ PREFERENCES FOR GOVERNMENT

SECURITIES

June 30th 2013 Public debt recorded at Rs.14,366 billionAttributed to financing of fiscal deficit (8 percent of GDP )

Pakistan’s domestic debt comprises of permanent debt, floating debt and unfunded debt.

Government borrowings from domestic sources were actually higher than the overall fiscal deficit in 2012-13 as

net external debt had to be paid.In 2012-13, the floating debt increased by Rs.1,053 billion.

In 2012-13, the floating debt increased by Rs.1,053 billion. The domestic debt increased by Rs.1,880 billion in 2012-13 as compared to last year and recorded at Rs.9,517 billion constituting 41 percent of GDP and 66 percent of the total

public debt in 2012-13 as shown in the next slide.

GOVERNMENT OF PAKISTAN DEBT