Money
Market:
“These
are generally short term instruments(less than 1 year original maturity) government and corporate debt
securities”
It also includes government securities originally
issued with maturities of more than 1 year but that now have a year or less
until maturity.
Features of money market
securities
Short
term borrowing
·
Low credit risk
·
High liquidity
Securities in
Pakistan
1.
Treasury bill
2.
Commercial Papers
3.
Eurodollars deposit
4.
Bankers’ acceptances (BAs)
5.
Repurchase agreements (RPs)
TREASURY
BILL (T-bill)
“These
are the short term non -interest- bearing obligations of the US Treasury issued
at discount and exchanged at maturity for full face value”
The Government of Pakistan raise large portion of
moving and permanent debt through the auctions of short term Government of
Pakistan Market Treasury Bills (MTBs)
Usually T-bill are issued the
bidding process
and
the Pakistan government follow the T-bill procedure it’s a safest investment
there is less risk return are less because it is safest treasures.
These securities are very popular in companies in
part because large and active market involved them. T-bills are sold on a
discount basis.
The interest income of these securities is taxed at
the federal level.
TYPES
OF TREASURY BILL:
These are the maturities when T-bill issued:
·
Three-months
·
Six-months
·
Twelve months
FEATURES
OF T-BILL:
DEFAULT
RISK: It is the guarantee of government so they have less
default risk.
LIQUIDITY:
These
are the highly liquid of financial market.so, whenever the holder wants.
MINIMUM
DENOMINATION: These securities are sold in Pakistan
minimum amount is RS 100 and multiple of
RS 100 above the minimum.
HOW
T-bills are traded in Pakistan
We know that T-bills were issued on “ Tap basis” for
6 months at 6% per year. Due to the economic crisis in Pakistan time to time
the system is changed and the new rules are come up.
·
Introduce the American-style
auction-based system.
·
The role of primary market
·
Primary dealers were appointed.
COMMERCIAL
PAPER:
“These
are the short term unsecured promissory notes, issued by the large
corporations”
Commercial paper can be sold by the issuing firm
directly or through dealers.
A number of large firms have found it cheaper to
sell their paper directly to investor.
MATURITY
PERIOD:
These
securities
usually issued at a discount rate. Maturities 30 days or 1 year from the date
of payment.
DENOMINATION:
These
securities issued shall be not less than 10million for the private company
would be denominated of 100,000.and for the general public company would be
denominated 5000
REPURCHASE
AGREEMENT:
“Agreement
to buy the securities (usually Treasury bills) and to resell them at a
specified higher price at a later date”
MAJOR
BORROWERS AND LENDERS:
·
Major borrowers include government, bond
dealers of Treasuries and federal funds securities, and large banks
·
Active lenders include state and local
governments, insurance companies, non-financial corporations, and foreign
financial institutions
BANKERS
ACCEPTANCES:
“Short
term promissory trade notes for which a bank (by having accepted them) promises
to pay the holder the face amount at maturity”
This note sold at discount rate same as Treasury
bill.
REQUIREMENTS
OF TIME DRAFT:
Signature
·
The word
accepted on top of his signatures and
·
The date on
which the amount will be paid
(BAs) are the time of drafts (short term promissory
notes)drawn on the bank by a firm to help finance foreign and domestic trade.
In case of accepting the draft a bank promises to
pay the holder of the draft a specified amount of money at maturity.
Acceptances is primarily judge relative to the bank accepting the drafts.
The maturity of banker acceptance in between the 30
to 180 days.
This promissory is creditworthiness of bank
acceptance.
They are traded over a security market
The rates on banker’s acceptances are slightly
higher than the rates on treasury bills like maturity.it is also offered at
discount rate.
Banker’s acceptances can be on domestic banks and on
large foreign banks.
EURODOLLARS
DEPOSIT:
“US
dollar-denominated deposit – generally in a bank located outside the US not
subject to united state banking regulations”
Although most of the Eurodollars are deposited in
banks in Europe, the term applies to any dollar deposit in foreign banks or in
foreign branches of US banks
For the large corporation having ready access to
international money centers. Eurodollar deposit is usually an important
investment option.
EXAMPLE:
“SUPPOSE
we assume that we own a cement firm in Pakistan. We shipped that consignment
and the worth of this consignment is 2million to the American importer. We have
an account in US bank. The US importers pays the bill in US money and deposits
the amount it in your account held in US bank Draft
.
CAPITAL
SECURITIES:
“These
are the long term securities which are (greater than one year original
maturity)
Financial
instruments E.g bonds, stocks etc”
The primary role of capital market
is to raise long term funds for government bonds and corporations. This raising
of funds is controlled by stock and bond markets. The members of the capital
market issue stocks and bonds in order to raise funds. Investors purchase those
stocks and bonds.
“Capital market serves as a link between savers and investors”
It plays an important role in
mobilizing savings and diverts the savings into productive investment. In this
way capital market plays an important role in transferring the financial
resources from surplus areas to productive areas thus promote economic growth
of the country. The capital market includes:-
Stock market
(Equity securities)
Bond Market (
Debt)
There
are two types of capital market:
·
Primary market
·
Secondary market
“Primary market” the bonds and stocks are sold through a
mechanism of underwriting. In “secondary
market” existing
securities are sold and bought among investors or traders, usually on a
securities exchange, over-the-counter, or elsewhere. Capital markets not only
reflect the general conditions of the economy of any country but also smoothens
the economic growth. The proper allocation of resources results in the
expansion of growth and progress in public and private sectors of the country
thus results in the balanced growth in economy of the country. Capital market
is that type of financial market that deals with the medium to long term funds
from surplus to deficit unit.
Equities issued by the company
can also be obtained from sEcondary and primary market. Preference shares are
ranked second after the bond holders .Derivatives are those instruments that
arrive from other securities .Derivative can be an asset instrument or a
situation. Derivatives are mostly common in developed economies. Some examples
of derivatives are:-
·
Asset-Backed
·
Securities
(ABS)
·
Exchange
Traded Funds
·
Commodities
·
Futures
·
Options
·
Swaps
·
Rights
Pakistan
Equity Capital market:-
Stock market performance is one
of the key determinants of political and economic conditions of any country.
Pakistan’s equity capital markets include:-
·
Karachi
Stock Exchange
·
Lahore
Stock Exchange
·
Islamabad
stock Exchange
Karachi
Stock Exchange:
Karachi stock exchange is one of
the largest and oldest stock exchange in south asia.It was established in 18th
September 1947.
Performance
of Karachi Stock Exchange
Karachi Stock Market remained in
record high trajectory during 2012-13, with the KSE-100 Index is setting new
records by each passing day and trading at above 20,300 level in mid May 2013
for the first time in its history.
Lahore
Stock Exchange:-
The Lahore stock exchange was
established in1974.The turn over shares of the Lahore Stock Exchange (LSE)
during July-March 2012-13 was 0.6 billion compared to almost the same figure in
the same period last year.
Islamabad
Stock Exchange:-
The Islamabad stock exchange was established in1989.The
turnover of share of the Islamabad Stock Exchange (ISE) was 0.02 billion during
July-March 2012-13 as compared to 0.01 billion during the same period last year
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