week 2 - the money markets

Question 1

what comprises the money market?

Answer 1

cash deposits and short-term debt

Question 2

describe the money market

Answer 2

it is a subsector of the fixed income market. The securities in the money market are short-termm, highly liquid and come with low risk. They often have large denominations, putting them out of reach for most individual investors

Question 3

who are the 3 main issuers of money market securities in Australia?

Answer 3

government
corporate
RBA

Question 4

what type of securities do the Australian government issue in the money market?

Answer 4

treasury notes

Question 5

what type of securities do corporate entities issue in the money market?

Answer 5

• Negotiable certificate deposits (NCDs)
  
  • BABs
  • Promissory notes
    
    • Commercial bills

Question 6

what are treasury bills, and what can their maturities be?

Answer 6

• US version of treasury notes
  
  • Can be 1, 2, 3, 4, 6 months or 1 year in maturity

Question 6

what type of securities do the RBA issue in the money market?

Answer 6

Repurchase agreements (repos)

Question 7

what are the characteristics of NCDs

Answer 7

• Short term (30 to 180 days)
  
  • Issued by Australian banks
  • Sold to institutional investors with large denomination
  • Promissory notes are essentially the equivalent NCDs issued
    by non-banks
  • Market interest rate guided by the bank bill swap rates
    (BBSW)

Question 8

what are the characteristics of BABs

Answer 8

• Short term (30 to 180 days)
  
  • Debt securities whereby default risk is transferred from the
    borrower (non-financial corps) to the bank accepting liability
    on maturity
  • A BAB is created when the borrower issues a commercial bill
    and the bank accepts the bill of exchange agreement
  • Market interest rate guided by the bank bill swap rates
    (BBSW)

Question 9

what are the characteristics of REPOs

Answer 9

• Short term sales of securities arranged with an agreement
  to repurchase securities at a set higher price
  
  • An RP is collateralised loan for a very short-term, many
    overnight
  • Government debt, NCDs and bank bills are used as collateral
  • Repos are used by the RBA to conduct monetary policy
    through open market operations (OMOs)