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Group 2 - VN's Money markets report

Group 2 - VN's Money markets report - Vietnams Money Market...

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Vietnam’s Money Market A. Money markets in Vietnam 1. Definition Money markets exits to transfer funds from individuals, corporations, and government units with short-term excess funds (suppliers of funds) to economic agents who have short- term needs for funds (users of funds) 2. Functions and its importance Satisfy the immediate cash needs of individuals, corporations, and government Enable large amounts of money to be transferred from suppliers of funds to users of funds for short periods of time both quickly and at low cost to the transacting parties Be an important tool that government use to regulate economy 3. Participants State bank of Vietnam Commercial banks Brokers and Dealers Corporations Individuals Other financial institutions B. Money markets’ instruments in Vietnam Short-term debt instruments (those with an original maturity of 1 year or less) are issued by economic units that require short-term funds and are purchased by economic units that have excess short-term funds Once issued, money market instrument trade in secondary markets which are extremely important as they serve to reallocate the (relatively) fixed amounts of liquid funds available in the market at any particular time Basic characteristics Sold in large denominations; low transaction cost Low default risk Must have an original maturity of one year or less 1. Treasury bills (T-bills) Based on participants, the money market includes: - The short-term (ST) debt market - The ST credit market between commercial banks ( Interbank) - The foreign exchange market First of all, we learn about one of the ST debt market’s instrument, the treasury bills. Related to treasury bills, we should know - What are treasury bills, - What are its characteristics, - How to calculate its price, - Its auctions and its payment process The term “ treasury bills” is stated as the ST debt obligations issued by the ministry of finance with the aim of covering a temporary deficit of state budget. Additionally, the Government buys and sells T-bills to implement monetary policy.
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The T-bills have high liquidity, so they are owned mainly by commercial banks. They were released in the form of certificates or book entries. This tool are sold on a discount basis, without coupon rate.The duration of Treasury bills usually 3 months, 6 months, 1 year. It is the least risk instrument in the currency market because - It is the State to guarantee the payment - The duration is short so that the interest rate fluctuations on the currency markets was negligible. As mentioned in the Inter-ministerial Circular No. 01/NHNN - TC IN THE GUIDELINES FOR TREASURY BILLS, the selling price of treasury bills are calculated as followed: MG G = ---------------------- Ls x T 1 + ------------ 365 x 100 G: The selling price of treasury bills MG: The par value of treasury bills Ls: The interest rate for treasury bills winning (calculated in percentage%).
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