RSM_230_Week 2_W2010_MoneyMarket-2

RSM_230_Week 2_W2010_MoneyMarket-2 - RSM 230: F inancial M...

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Stapleton: RSM 230 2010_2 Money Market 1 RSM 230: Financial M arkets Week 2 - Money M arket Securities
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Stapleton: RSM 230 2010_2 Money Market 2 Money Market Securities Material for class: posted on Blackboard Required Reading: Cleary (3 rd edition),Chapter 6 Supplementary Readings: - Booth & Cleary, Ch 1, page 16, & Ch 18, page 701-706 - M ishkin, Chapter 9 (US focus) – on reserve in the Rotman Library (2 nd floor, Rotman Bldg)
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Stapleton: RSM 230 2010_2 Money Market 3 Overview of The M oney M arket The money market securities have a maturity of less than one year . Most are marketable and highly liquid which means they can be converted to money (cash) at full value very quickly: (ie they have high moneyness ) Demand comes from big institutions and corporations who have excess cash and are reluctant to invest for the long term, so they look for very short term, safe, investments Supply comes from major borrowers who see the money market as a low cost source of funds The overnight rate is important as it affects all short term interest rates (Topic be discussed in session 5 of this course) Almost all money market securities are discount notes
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Stapleton: RSM 230 2010_2 Money Market 4 Classifying Securities Basic Types Major Subtypes Fixed Income ( I nterest-paying) Money market securities, Bonds, Mortgages, Asset-Backed securities Equities Common stock Preferred stock Derivatives Options Futures Debt .. also called
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Stapleton: RSM 230 2010_2 Money Market 5 Classifying Debt Securities Classified by their Term to M aturity : M oney M arket Securities - M ature in < 1 year Treasury Bills Bankers’ acceptances & other bank instruments Commercial Paper Long Term Debt - M ature in > 1 year Bonds Debentures M ortgages
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Stapleton: RSM 230 2010_2 Money Market 6 Other Classifications: Marketability Non-marketable securities Cannot be traded between or among investors May be redeemable Examples: Bank accounts Term Deposits GI C’s Canada Savings Bonds (CSB’s) Marketable securities Easily traded between or among investors - ie Liquid Money market securities Bonds Stocks Some derivatives
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Stapleton: RSM 230 2010_2 Money Market 7 H istory of the Canadian Money Market Before 1934 there was no Canadian money market Call loans went to New York or London Call loans are loans that the banks make where they can get repaid instantly (next day) to meet cash needs September 20,1931 Great Britain went off the gold standard and the pound sterling was no longer convertible into gold. Other countries followed and soon most currencies were floating, rather than fixed Canada had no way of intervening in the FX market to affect the value of the C$ 1934 M acmillan Report recommended establishing: A central bank Canadian money market Treasury bill auctions
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Stapleton: RSM 230 2010_2 Money Market 8 Money Market Securities - Type of I ssuer Treasury bills (T-bills) - short term securities issued by the treasury of a government .
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RSM_230_Week 2_W2010_MoneyMarket-2 - RSM 230: F inancial M...

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