Money Market

Components

1. Interbank deposits trading activity

Between bank-to-bank.
Consist of short-term borrowed (I day, overnight or 1
week)
This popular because have a realtions between borrowing
and lending to settle down the clearance check.
Example : CIMB Bank have a RM 250 Billion check
withdrawal dari customer Maybank, but CIMB just have a
RM 200 Million.
So, CIMB a debt with Maybank as much as rm 50 Million,
so theres is interest the debt.
Below is the calculation for the interest.

Money Market
Components
2.

Trading of money market instruments

Consist of any salin variety of security (short-term)
No physical money market.
The suppliers of funds for money market instruments are
institutions and individuals.
Important for businesses because it allows companies with
a temporary cash surplus to invest in short-term securities

Malaysian Money Market

Instruments
3.1 : Malaysian Treasury Bills
(MTB)
It give in a small amount because its
have a limit liquidity.
The typical maturities are 3, 6 and 12
months.
Example, Goverment had give a debt to
1MDB around 2.1 Billion in a short
period payment.

Malaysian Money Market

Instruments
3.2 Bank Negara Malaysia Bills (BNB)
BNB are short-term securities issued by Bank
Negara Malaysia and are bidded on yield basis.
The maturity is always less than a year.
The yield is specified as a rate of discount and
the tenor of BNB are expressed in actual
number of days.

Malaysian Money Market

Instruments
3.3 : Malaysian Government
Securities (MGS)
MGS are sovereign debt papers or
bonds issued by the Malaysian
government to raise funds in the
domestic capital market. They typically
have fixed coupon rates (interest rates)
that are paid on a semi annual basis.
5 years >

Malaysian Money Market

Instruments
3.4 : Bankers Acceptances (BAS)
The financial institution promises to pay the
exporting firm a specific amount on a specific date,
at which time it recoups its money by debiting the
importers account. A bankers acceptance, or BA,
works much like a post-dated check, which is simply
an order for a bank to pay a specified party at a later
date.
HSBC give pinjaman

Malaysian Money Market

Instruments
3.5 : Commercial Papers (CP)
Commercial Papers are short term,
unsecured (promissory notes) debt
instruments issued by corporations
Commercial paper is amoneymarketsecurityissued (sold) by
largecorporationsto obtainfundsto meet
short-termdebtobligations (for
example,payroll), and is backed only by an
issuing bank or corporation's promise to pay
the face amount on the maturity date
specified on the note.

Malaysian Money Market

Instruments
3.6 : Cagamas notes
Cagamas Notes are short-term securities
with the tenor of 12 months or less.
The notes are similar to MTB and
normally issued at a discount. The issuer
is the National Mortgage Corporation;
CAGAMAS.
At maturity they are redeemable at
nominal value.

Malaysian Money Market

Instruments
3.7 : Cagamas bonds
Cagamas bonds are longer term debt instruments
issued by the National Mortgage Corporation
The bonds are often the result of securitization of
housing loans of local commercial banks that
have been purchased by CAGAMAS.
The bonds have either a fixed coupon rate or a
floating coupon.

Malaysian Money Market

Instruments
3.8 : Khazanah bonds
Khazanah bonds are essentially rated
as government paper
They share many of the same
features of MGS securities.

Malaysian Money Market

Instruments
3.9 :Negotiable instrument of deposits
(NIDS)
To enable bank deposits to be traded on the
secondary market
NIDs being of private issuance, typically
provide a higher yield than the treasury bills
The underlying asset is typically an MGS,
government bond or other liquid
instruments

Pricing Of Money Market

Instruments
The factors that determine an
instruments price :
Time left to maturity (in days)
The nominal or face value of the
instrument (redeemable amount)
The required return or yield for the
instruments (discount factor) and
The coupon / interest payment, if any

 Determining the price of a

Money Market Instrument
P = Price of instrument
FV = Face value or redeemable amount at
maturity
r = Required yield (discount factor)
t = number of days left to maturity
* This formula just to get the interest at
the end of the contract.

Interest Rates, Yields

And Price Of Money
Market
Instruments
Based on discounting and hence, are very

sensitive to changes in interest rates

Funds flow easily between the two and this
ensures co-movement in their yields/rates
of return.
If the rate a lower, that means the price is
higher, and its turn back if the rate is
higher.
And its consist of two player which one is
the surplus, and another is the deficit one.

Price

Interest rates

Lend funds

SURPLUS
BANK

DEFICIT
BANK

The Central Bank, Money

Market And Monetary
Policy Operations

A central banks activity in money

markets typically has four broad
policy objectives;

1) Ensuring the smooth functioning of the

banking system
2) Implementation of monetary policy
3) Offsetting imbalances resulting from the
external sector
4) Sterilization of forex market operations

1. Ensuring the smooth

functioning of the banking
system

This to make sure theres is no imbalances

in liquidity between player.
Because if it exist a net shortage could
lead to a credit crunch if unchecked
And will cause excess liquidity that will
give a bad impact for the company

2. Implementation of monetary policy

Monetary policy has two legs : i) interest rates ii)

money supply
- The central control the liquidity of money by these
type of control which if theres a lot of money in
market, so they make higher rate, and if theres no
money, so they supply it back.
central bank can undertake the sale of government
securities:
i) drive down liquidity and thereby raise the yields and
interest rates
ii) offering higher rates on deposits of commercial banks

3. Offsetting imbalances resulting

from the external sector
External imbalances can quickly
translate into sudden imbalances
i) Sudden inflow of funds through FDI
Ii) Outflow due to higher rates
elsewhere

4. Sterilization of forex market

operations
often intervene in foreign exchange
markets to influence exchange rates
In order to offset any side effects due to
the foreign exchange intervention

Managing asset liability mismatches

Why do mismatches ?
- Due to the different maturity of items
When a banks asset-liability imbalances are
temporary in nature, depending on the interbank
money market is perfectly acceptable. How?
- i) A bank with surplus funds can either lend by
placing deposits with other banks in the interbank
deposit system or lend by purchasing money
market instruments
- Ii) A bank with a cash deficit can borrow by either
taking / accepting deposits in the interbank deposit
system or sell money market instruments
Relying on money markets to fund asset growth is a
risky strategy.