2d Other asset classes Flashcards
What does the money market consist of? (2 segments)
The inter-bank market
Market in money market secuirites
LIBOR - what is it and what time is it calculated by and by who?
Inter bank rate - avg price offered in London by the banks
Calculated at 11am by ICE Benchmark Administration (IBA)
Government bills - when issued and by whom, what coupon, life ?
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
Commercial paper - discounts, coupon, redemption and expiry dates?
Discount instruments
No coupon
Redeemed at par value
Expiry - between 7 days and 12 mths (<270 days in US)
What are treasury bill issues in the UK known as and who are they held by and when?
Known as tenders
Held by DMO
At end of the week (usually a Friday)
Treasury bills - issuance process?
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
What does it mean that govt bills are zero-coupon?
Issued at a discount and redeemed at par (NV_
What is the minimum UK denomination of T-bills?
25k
CP risk vs. T bill risk?
CP is riskier so CP yield is greater than the T bill yield
What type of debt is both t-bills and commercial paper?
Short term, unsecured debt
Types of issuance of commercial paper?
Direct paper (buy and hold)
Dealer paper (promotion of programmes)
What is direct paper?
When large issuers, especially finance companies, have the market presence they will issue their paper directly to investors.
What is dealer paper?
Commercial paper programmes that may be promoted by dealers.
Commercial paper programme definition
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
Exceptions to typical CP?
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.
Rollover risk ?
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.
Open repo?
No fixed time for repurchase
Term repo
Maturity dates in excess of oernight
Repo rate definition?
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 %.
Forward market vs spot market?
Spot mkt is today’s rate (T+2)
Forward market is rate agreed today for future deliver (>T+2)
Cross rate?
Any foreign currency rate that doesn’t involve the USD
When is non-farms payroll report out?
First Friday of each month at 8:30am ET
What is a carry trade in FX?
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.
Interest rate parity?
Ratio between forward rate and spot rate for two countries should equal the interest rate differential between two countries
Equation for fwd rate using interest rate parity?
F = S * (1+r(variable))/(1+r(base))
Where is cryptocurrency held?
Money outside control of govts and central banks
Exampes of crypto?
Bitcoin, Litecoin, Dogecoin, Ethereum
How can one acquire crypto?
Buy it with fiat money
Earn it through browsing and posting
Crypto mining
Risks to cyrpocurrency?
Volatility
Decentralised and not reserve backed
Largely unregulated
Operational risk and hacking
What is a distributed ledger?
Centralised ledger of transactions with a decentralised network of computers all holding copies of exactly the same ledger
This is commonly associated with cryptos
Adv of distributed ledger?
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
