Treasury Markets and Operations

CHAPTER 3 Money and Capital Markets

  Learning  objectives  

After studying this chapter, you should be able to:

1. Describe the structure, players, and instruments used in the Hong Kong dollar market.
2. Describe the functions of the international money market and the money market desk within organisations, including compliance with regulatory requirements.
3. Explain the properties of money market instruments such as government bills, certificates of deposit, commercial papers, and repurchase agreements.

Introduction

Money markets exist in every market economy, which is practically every country in the world. In every case, they comprise securities with maturities of up to 12 months. That’s because the money market is designed for short-term borrowing and lending. Its main function is to transfer funds from lenders to borrowers through various financial instruments that have a tenor of a year or less.

The funding position of financial institutions varies day by day. To handle the short-term and long-term requirement for funds, the treasury manager must properly monitor the daily funding requirement and market situation so that he can: a) hold a minimum cash balance required for day-to-day transactions, and b) put surplus funds in money market instruments that are easily convertible to cash, that is, that are highly marketable. Moreover, the treasury manager participates actively in the interbank money market in order to maintain access to the money funds if required.

As with the ...