FINANCIAL MARKETS

MONEY MARKET
INSTRUMENTS
GROUP 2
 MONEY MARKET INSTRUMENTS
• Money market instruments are short-term securities.
• Money market instruments represent paper or electronic evidence of debt.
• They are distinct from equity securities, which are long-term and belong to the capital
market.
• They provide mechanisms for short-term borrowing, lending, and liquidity management
for various entities, including government, financial institutions, and corporations.
 CASH MANAGEMENT BILLS
Cash Management Bills (CMBs) are short-term government-issued securities. They have
maturities of less than 91 days, often 35 days or 42 days. Government securities (GS) are
unconditional obligations of the government issuing them, backed up by the full taxing power of
the issuing government. As such, they are theoretically default-free.

Cash Management Bills have shorter maturities compared to Treasury bills. Treasury bills
•
typically have maturities ranging from a few days to one year, while CMBs focus on even shorter
durations. They offer investors security and liquidity, making them an attractive option for
managing cash and short-term investments.
 TREASURY BILLS
Treasury Bills are short-term government securities issued by the Bureau of the Treasury. Maturities: 91-
day, 182-day, and 364-day to align with business days. Sold exclusively through Government Securities
Eligible Dealers (GSEDs). Transactions conducted via online bidding.

2 TYPES OF GOVERNMENT SECURITIES

1.Treasury Bills - Short-term, zero-coupon securities sold at a discount.
- No periodic interest payments; only face value.
- Purchase price is less than face value.
2. Treasury Bonds - Long-term securities with coupon payments, sold at face value.
- Quoted by discount rate or price based on 100 points per unit.
 BANKER’S ACCEPTANCE
Banker's acceptance is a time draft issued by a bank payable to a seller of goods. It is drawn on and
accepted by the bank. Banker's acceptances provide sellers with a reliable payment mechanism backed by
the bank's creditworthiness.

Before acceptance, the draft is not an obligation of the bank; it is merely an order by the drawer to the bank
to pay a specified sum of money on a specified date to a named person or to the bearer of the draft just like
an ordinary check.

Upon acceptance, which occurs when an authorized bank employee stamps the draft "accepted" and signs
it, the draft becomes a primary and unconditional liability of the bank. If the bank is well known and enjoys
a good reputation, the accepted draft may be readily sold in an active market (LaRoche 1998).
 LETTERS OF CREDIT
A letter of credit is an assurance or guarantee to sellers that they will be paid for a large transaction. Letters
of credit are particularly common in international or foreign exchanges. They act as a form of payment
insurance from a financial institution or another accredited party to the transaction.

TYPES OF LETTERS OF CREDIT

1.COMMERCIAL -Prominent in international trade.
2. STANDBY - used as insurance.
3. REVOCABLE - creates leverage for the issuer.
4. IRREVOCABLE - no amendments or cancellations can occur without the consent of all parties.
5. REVOLVING - can be used for a series of payment.
6. RED CLAUSE - contains an unsecured loan
 NEGOTIABLE CERTIFICATES OF DEPOSIT

Certificate of Deposits Negotiable Certificates of Deposits

- receipts issued by a commercial bank for - Early 1960s, secondary market was established in which
depositing money. certificates of deposits in denomination of $100,000 or
- It is a time deposit with a definite maturity more can be traded prior to maturity, that's why Negotiable
date and definite rate of interest. Certificates of Deposits are born.
- Bearer is entitled to receive annual interest - These are not regular certificates of deposit held by
payments at the rate indicated in the depositors.
certificate, together with the principal upon - It is a bank-issued time deposit that specifies an interest
maturity of the certificate. rate and maturity date is negotiable.
- Not ordinarily redeemed prior to maturity. Normally short term that deals in approximate 2 to 52
weeks with a large denomination of ₱100,000, ₱500,000,
and ₱1M.
 NEGOTIABLE CERTIFICATES OF DEPOSIT

Banks offering CDs in Philippines : Banks issue negotiable CDs to attract additional
- Union Bank funds to make additional loans or to counteract the
- BDO restrictive effect of deposit withdrawals.
- HSBC Banks also began to issue negotiable CDs which are
not subject to statutory interest rate ceilings in effort
to halt withdrawals.
- CDs are more heterogeneous than T-Bills.
Those securities dealer who makes the secondary
market in CDs mainly trades in million units. Primary buyers of Negotiable CDs:
- Income received from CDs is subject to - Corporations
taxation at all government levels. - Money Market Mutual Funds
- Government Institutions
- Charitable Organizations
- Foreign Buyers
 REPURCHASE AGREEMENTS
These are legal contracts involving the sale of securities with a commitment to repurchase them at a later
date. Usually short-term loans from entities with idle funds to financial institutions. A repurchase agreement
is usually a short-term loan (often overnight) from a corporation, state or local government, or other large
entity that has idle funds to a commercial bank, securities dealer, or other financial institution.

They were created by brokerage houses and popularized by commercial banks. A reverse repurchase
agreement or reverse repo is an agreement involving the purchase of securities by one party to another with
the promise to sell them back at a given date in the future.
 MONEY MARKET MUTUAL FUNDS
This is an instrument fund that pools funds from multiple participants and invests in money market
instruments supplied by investment firms. In the Philippines, there are now four types of mutual funds:
stock, bond, balanced, and money market funds. Additionally, mutual funds can be characterized as

SECTOR FUND GLOBAL FUND

GROWTH
FUND

INCOME FUND
INDEX FUND BALANCED
FUND
 MONEY MARKET DEPOSIT ACCOUNT

This instrument is also referred to as money market accounts. It refers to PDIC-insured deposit accounts,
which are often maintained by banks or brokerages and can serve as a constant location to hold money
for future investments or funds received from the sale of previous assets. They are safer and more
capable liquid instruments.

CERTIFICATE OF ASSIGNMENT

This is an agreement that transfers the seller's rights over a security to the buyer. The underlying security,
similar to a promissory note, conveys the promise to pay a specified sum of money on a specific date.
The agreement enables the buyer to retain the security as a secured source of repayment. The buyer can
force the liquidation of the underlying security to assure repayment.
 CERTIFICATE OF
PARTICIPATION The transaction in this instrument is between the buyer and the security's
original issuer. This is an instrument that entitles the bearer to a
proportionate equitable interest in the securities owned by the issuing firm,
or to a pro rata share in a pledged revenue stream, typically lease payments.
The lessor transfers the lease and payments to a trustee, who distributes
them to the certificate holders.

EURODOLLAR CDS AND EUROCOMMERCIAL PAPERS

This instrument denotes a dollar-dominated, negotiable, big time deposit at a bank outside
the United States. Similarly, Euro-commercial Papers (EUROCPs) are issued in Europe
by commercial paper dealers without the involvement of a bank.
 END OF PRESENTATION

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