2d Other asset classes

Question 1

What does the money market consist of? (2 segments)

Answer 1

The inter-bank market
Market in money market secuirites

Question 2

LIBOR - what is it and what time is it calculated by and by who?

Answer 2

Inter bank rate - avg price offered in London by the banks
Calculated at 11am by ICE Benchmark Administration (IBA)

Question 3

Government bills - when issued and by whom, what coupon, life ?

Answer 3

Issued weekly by the Treasury through a T-bill tender.
No coupon paid - issued at a discount
Typically 1,3 or 6 months, 3 is most common

Question 4

Commercial paper - discounts, coupon, redemption and expiry dates?

Answer 4

Discount instruments
No coupon
Redeemed at par value
Expiry - between 7 days and 12 mths (<270 days in US)

Question 5

What are treasury bill issues in the UK known as and who are they held by and when?

Answer 5

Known as tenders
Held by DMO
At end of the week (usually a Friday)

Question 6

Treasury bills - issuance process?

Answer 6

Tenders are open to bids from eligible bidders which include all of the major banks.
Bids are tendered competitively (auction)
The highest prices bid wins and if successful, participants pay the price they bid

Question 7

What does it mean that govt bills are zero-coupon?

Answer 7

Issued at a discount and redeemed at par (NV_

Question 8

What is the minimum UK denomination of T-bills?

Answer 8

25k

Question 9

CP risk vs. T bill risk?

Answer 9

CP is riskier so CP yield is greater than the T bill yield

Question 10

What type of debt is both t-bills and commercial paper?

Answer 10

Short term, unsecured debt

Question 11

Types of issuance of commercial paper?

Answer 11

Direct paper (buy and hold)
Dealer paper (promotion of programmes)

Question 12

What is direct paper?

Answer 12

When large issuers, especially finance companies, have the market presence they will issue their paper directly to investors.

Question 13

What is dealer paper?

Answer 13

Commercial paper programmes that may be promoted by dealers.

Question 14

Commercial paper programme definition

Answer 14

Ongoing programme where the issuer advertises the rate at which it is willing to issue paper for various terms
Buyers can purchase the papers whenever they have the funds to invest

Question 15

Exceptions to typical CP?

Answer 15

Typically CP is unsecured but in some countries like the US< it can be asset-backed. ABCP.
Paper is backed by company’s physical assets such as trade receivables.

Question 16

Rollover risk ?

Answer 16

COmpany uses new issue of CPs to pay off existing CPs - rolls over the debt.
Risk of being unable to issue enough CPs to cover the exisitng issue.

Question 17

Open repo?

Answer 17

No fixed time for repurchase

Question 18

Term repo

Answer 18

Maturity dates in excess of oernight

Question 19

Repo rate definition?

Answer 19

Difference between the amount of cash paid over at the start of the agreement and the amount paid over at the end, expressed as a %.

Question 20

Forward market vs spot market?

Answer 20

Spot mkt is today’s rate (T+2)
Forward market is rate agreed today for future deliver (>T+2)

Question 21

Cross rate?

Answer 21

Any foreign currency rate that doesn’t involve the USD

Question 22

When is non-farms payroll report out?

Answer 22

First Friday of each month at 8:30am ET

Question 23

What is a carry trade in FX?

Answer 23

Borrowing of funds in a currency where rate of interest is relatively low and then purchasing secuirites, often govt bonds, which have relatively high yields.

Question 24

Interest rate parity?

Answer 24

Ratio between forward rate and spot rate for two countries should equal the interest rate differential between two countries

Question 25

Equation for fwd rate using interest rate parity?

Answer 25

F = S * (1+r(variable))/(1+r(base))

Question 26

Where is cryptocurrency held?

Answer 26

Money outside control of govts and central banks

Question 27

Exampes of crypto?

Answer 27

Bitcoin, Litecoin, Dogecoin, Ethereum

Question 28

How can one acquire crypto?

Answer 28

Buy it with fiat money
Earn it through browsing and posting
Crypto mining

Question 29

Risks to cyrpocurrency?

Answer 29

Volatility
Decentralised and not reserve backed
Largely unregulated
Operational risk and hacking

Question 30

What is a distributed ledger?

Answer 30

Centralised ledger of transactions with a decentralised network of computers all holding copies of exactly the same ledger
This is commonly associated with cryptos

Question 31

Adv of distributed ledger?

Answer 31

Produces trustworthy and reliable record
Prevents a single point of failure as numerous nodes are used
Very diffiuclt ot hack because of multiple nodes
Removes costs/delays caused by need to maintain and update a single database