Introduction

Market for short term financing Investment instruments that are traded or issued internationally. Core of this market is euro currency market.

Features Of International Money Market

Reconcile the cash needs of deficit units with needs of surplus units. High degree of safety of principal No central location

INSTRUMENTS
Bankers acceptance and Letter of credit Euro notes and euro commercial papers Floating rate notes Euro currency time deposits and certificate of deposits Medium term notes and deposit notes

Bankers Acceptance
Bankers 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.

Letter of credit
Legal commitment on the part of the bank in which the bank promises the exporter to pay on behalf of the importer upon presentation of documents conveying title of the goods.

Eurocurrency time deposits

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.

Euro Notes and Euro Commercial Papers

Short term instruments Unsecured promissory notes issued by corporations and banks. Euro notes encompasses note issuance facilities. It can be:

Underwritten Non Underwritten

With the support of a medium term commitment by a group of banks to provide funds. Without the support of a medium term commitment by a group of banks to provide funds.

Medium Term Notes

Issued by international banks. Fixed rate corporate bonds but of generally shorter maturity Regarded by institutional investor as a temporary investment that can be designed to suit particular investors requirements. MTN financing is often described as Investor Driven. Problem with MTNs is lack of liquidity. Yield calculated in the same way as bond yield.

Floating Rate Notes Instrument was introduced in early 1970s. Interest rate floats.
Pays a three or six months 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 a benchmark for finance all over the world.

Features of FRNs
Reference rate Margin

Coupon payment frequency

Maturity

Reference rate period