Financial market

A financial market is a market in which people and entities can trade financial securities,
commodities, and other fungible items of value at low transaction costs and at prices that reflect
supply and demand. Securities include stocks and bonds, and commodities include precious
metals or agricultural goods.
There are both general markets (where many commodities are traded) and specialized markets
(where only one commodity is traded). Markets work by placing many interested buyers and
sellers, including households, firms, and government agencies, in one "place", thus making it
easier for them to find each other. An economy which relies primarily on interactions between
buyers and sellers to allocate resources is known as a market economy in contrast either to a
command economy or to a non-market economy such as a gift economy.
Financial markets facilitate:

 The raising of capital (in the capital markets)

 The transfer of risk (in the derivatives markets)

 Price discovery

 Global transactions with integration of financial markets

 The transfer of liquidity (in the money markets)

 International trade (in the currency markets),

Financial Markets are used to match those who want capital to those who have it.
Typically a borrower issues a receipt to the lender promising to pay back the capital. These
receipts are securities which may be freely bought or sold. In return for lending money to the
borrower, the lender will expect some compensation in the form of interest or dividends. This
return on investment is a necessary part of markets to ensure that funds are supplied to them.
Money market instruments

1. REPO

A REPO (Repurchase agreement) is a sale of assets and a simultaneous agreement to repurchase

equivalent assets at a future date for the original value plus a return on the use of the cash. The
Repo is a monetary policy instrument used by Central Bank to regulate liquidity in banking
financial System.

2. Treasury bills

Treasury Bills (T-bills): Are short term debt securities (one year or less) issued as a primary
instrument for regulating money supply or raising funds via open market operations to finance
the budget gap. T-bills are always issued through the country’s central bank, and commonly pay
no explicit interest but are sold at a discount, their yield being the difference between price and
the par-value also called redemption value
T-Bills are issued by auction on weekly basis with maturity dates of 28 days, 91 days, 182 days
and 364 days. T-Bills market is announced via BNR website, each Monday for auction on
Thursday (T), and settlements take place on Friday (T+1). The minimum purchase is Frw
100.000. T-bills market is open for all investors ( Banks, non Banks, Insurance companies,
Pension Fund, individuals, etc
3. Treasury bonds
Treasury bonds are issued with a minimum denomination of RFW 100,000. The bonds are
initially sold through auction in which the competitive bidder sets up the price. A competitive bid
states the rate that the bidder is willing to accept; it will be accepted depending on how it
compares to the set rate of the bond. A non-competitive bid ensures that the bidder will get the
bond but he or she will have to accept the set rate. After the auction, the bonds can be sold in the
secondary market