货币金融学financialmarketandinstitutions-米什金-英文ch11原版

1、Now thats a lot!In its 2021 annual report, Microsoft listed $25 billion in short-term securities on its balance sheet, plus $6 billion in actual cash equivalents. Microsoft does not keep this in its local bank. But where?This is, of course, this topic of chapter 11Money Markets.Chapter PreviewWe rev

2、iew the money markets and the securities that are traded there. In addition, we discuss why the money markets are important in our financial system. Topics include:The Money Markets DefinedThe Purpose of Money MarketsWho Participates in Money Markets?Money Market InstrumentsComparing Money Market Se

3、curitiesThe Money Markets DefinedThe term “money market is a misnomer. Money (currency) is not actually traded in the money markets. The securities in the money market are short term with high liquidity; therefore, they are close to being money.The Money Markets DefinedMoney Markets DefinedMoney mar

4、ket securities are usually sold in large denominations ($1,000,000 or more)They have low default riskThey mature in one year or less from their issue date, although most mature in less than 120 daysThe Money Markets Defined: Why Do We Need Money Markets?In theory, the banking industry should handle

5、the needs for short-term loans and accept short-term deposits. Banks also have an information advantage on the credit-worthiness of participants.Banks do mediate between savers and borrowers; however, they are heavily regulated. This creates a distinct cost advantage for money markets over banks.The

6、 Money Markets Defined: Cost AdvantagesReserve requirements create additional expense for banks that money markets do not haveRegulations on the level of interest banks could offer depositors lead to a significant growth in money markets, especially in the 1970s and 1980s. When interest rates rose,

7、depositors moved their money from banks to money markets to earn a higher interest rate.The Money Markets Defined: Cost AdvantagesEven today, the cost structure of banks limits their competitiveness to situations where their informational advantages outweighs their regulatory costs.Figure 11.1 shows

8、 that limits on interest banks could offer was not relevant until the 1950s. But in the decades that followed, the problem became apparent.3-month T-bill rates andInterest Rate CeilingsThe Purpose of Money MarketsInvestors in Money Market: Provides a place for warehousing surplus funds for short per

9、iods of timeBorrowers from money market provide low-cost source of temporary fundsThe Purpose of Money MarketsCorporations and U.S. government use these markets because the timing of cash inflows and outflows are not well synchronized. Money markets provide a way to solve these cash-timing problems.

10、Who Participates in the Money Markets?We will discuss, in turn, each of the major borrowers and lenders in the money market.Before we do that, lets examine some of the current rates offered in the U.S. money markets. Some of these rates have been discussed in previous chapters. Other rates will be e

11、xplored throughout this chapter.Who Participates in the Money Markets?: A Sample from the Wall Street JournalWho Participates in the Money Markets?Money Market InstrumentsWe will examine each of these in the following slides:Treasury BillsFederal FundsRepurchase AgreementsNegotiable Certificates of

12、DepositCommercial PaperEurodollarsMoney Market Instruments (cont.)We will examine each of these in the following slides (continued):Commercial PaperBankers AcceptanceEurodollarsMoney Market Instruments: Treasury BillsT-bills have 28-day maturities through 12- month maturities. Discounting: When an i

13、nvestor pays less for the security than it will be worth when it matures, and the increase in price provides a return. This is common to short-term securities because they often mature before the issuer can mail out interest checks. Money Market Instruments: Treasury Bills Discounting ExampleYou pay

14、 $996.37 for a 28-day T-bill. It is worth $1,000 at maturity. What is its discount rate?Money Market Instruments: Treasury Bills Discounting ExampleYou pay $996.37 for a 28-day T-bill. It is worth $1,000 at maturity. What is its annualized yield?Money Market Instruments: Treasury Bill AuctionsT-bill

15、s are auctioned to the dealers every Thursday.The Treasury may accept both competitive and noncompetitive bids, and the price everyone pays is the highest yield paid to any accepted bid.Money Market Instruments: Treasury Bill Auctions ExampleThe Treasury auctioned $2.5 billion par value 91-day T-bil

16、ls, the following bids were received:BidderBid AmountBid Price1$500 million$0.9940 2$750 million$0.99013$1.5 billion$0.9925 4$1 billion$0.99365$600 million$0.9939The Treasury also received $750 million in noncompetitive bids. Who will receive T-bills, what quantity, and at what price? Money Market I

17、nstruments: Treasury Bill Auctions ExampleThe Treasury accepts the following bids:Bidder Bid Amount Bid Price 1$500 million $0.9940 5$600 million $0.9939 4$650 million $0.9936Both the competitive and noncompetitive bidders pay the highest yieldbased on the price of 0.9936:Money Market Instruments: T

18、reasury Bill RatesThe next slide shows the results of several Treasury bill auctions, from 2007.It also shows some other data about each auction. Do you know what each term means?Money Market Instruments: Treasury Bill Auction ResultsMoney Market Instruments: Treasury Bill RatesThe next slide shows

19、actual T-bill rates and the annual rate of inflation from 1973 through 2021.Notice that the inflation rate exceeds the rate on T-bills in several on the years. This indicates a negative real return for T-bill investors during these periods.Money Market Instruments: Treasury BillsMini-Case: Treasury

20、Bill Auctions Go HaywireIn 1991, Salomon Smith Barney violated Treasury auction rules to corner the auction on an $11 billion issue.Several top Salomon officials were forced to retire (or fired) as a result of the incident.The Treasury also changed the auction rules to ensure a competitive auction.M

21、oney Market Instruments: Fed FundsShort-term funds transferred (loaned or borrowed) between financial institutions, usually for a period of one day.Used by banks to meet short-term needs to meet reserve requirements.Money Market Instruments: Fed Funds RatesThe next slide shows actual fed funds rates

22、 and T-bill rates 1990 through 2021.Notice that the two rates track fairly closely. What does this suggest about the market for T-bills and the market for fed funds?Money Market Instruments: Fed Funds RatesMoney Market Instruments: Repurchase AgreementsThese work similar to the market for fed funds,

23、 but nonbanks can participate.A firm sells Treasury securities, but agrees to buy them back at a certain date (usually 314 days later) for a certain price.Money Market Instruments: Repurchase AgreementsThis set-up makes a repo agreements essentially a short-term collateralized loan.This is one marke

24、t the Fed may use to conduct its monetary policy, whereby the Fed purchases/sells Treasury securities in the repo market.Money Market Instruments: Negotiable Certificates of DepositA bank-issued security that documents a deposit and specifies the interest rate and the maturity dateDenominations rang

25、e from $100,000 to $10 millionMoney Market Instruments: Negotiable Certificates of DepositThe next slide shows actual CD rates and T-bill rates 1990 through 2021.Again, notice that the two rates track fairly closely. What does this suggest about the market for T-bills and the market for CDs?Money Ma

26、rket Instruments: Negotiable CD RatesMoney Market Instruments: Commercial PaperUnsecured promissory notes, issued by corporations, that mature in no more than 270 days.The use of commercial paper increased significantly in the early 1980s because of the rising cost of bank loans.Money Market Instrum

27、ents: Commercial PaperThe next slide shows actual commercial paper rates and the prime rates 1990 through 2021. Although the two track closely in terms of movements, notice that difference between the two remains roughly 200 basis points.Money Market Instruments: Commercial Paper RatesMoney Market I

28、nstruments: Commercial PaperThe next slide shows actual commercial paper volume by year from 1990 through 2021. Notice that the volume fell significantly during the recent economic recession. Even so, the annual market is still quite large, at well over $1.5 trillion outstanding.Money Market Instrum

29、ents: Commercial Paper VolumeMoney Market Instruments: Commercial PaperA special type of commercial paper, known as asset-backed commercial paper (ABCP), played a key role in the financial crisis in 2021. These were backed by securitized mortgages, often difficult to understand. This special part of

30、 the commercial paper market accounted for about $1 trillion.Money Market Instruments: Commercial PaperWhen the poor quality of the underlying assets was exposed, a run on ABCP began. Because ABCP was held by many money market mutual funds (MMMFs), these funds also experienced a run. The government

31、eventually had to step in to prevent the collapse of the MMMF market.Money Market Instruments: Bankers AcceptancesAn order to pay a specified amount to the bearer on a given date if specified conditions have been met, usually delivery of promised goods.These are often used when buyers / sellers of e

32、xpensive goods live in different countries.Money Market Instruments: Bankers Acceptances AdvantagesExporter paid immediatelyExporter shielded from foreign exchange riskExporter does not have to assess the financial security of the importerImporters bank guarantees paymentCrucial to international tra

33、deMoney Market Instruments: Bankers AcceptancesAs seen, bankers acceptances avoid the need to establish the credit-worthiness of a customer living abroad.There is also an active secondary market for bankers acceptances until they mature. The terms of note indicate that the bearer, whoever that is, w

34、ill be paid upon maturity.Money Market Instruments: EurodollarsEurodollars represent Dollar denominated deposits held in foreign banks.The market is essential since many foreign contracts call for payment is U.S. dollars due to the stability of the dollar, relative to other currencies.Money Market I

35、nstruments: EurodollarsThe Eurodollar market has continued to grow rapidly because depositors receive a higher rate of return on a dollar deposit in the Eurodollar market than in the domestic market. Multinational banks are not subject to the same regulations restricting U.S. banks and because they

36、are willing to accept narrower spreads between the interest paid on deposits and the interest earned on loans. Money Market Instruments: Eurodollars RatesLondon interbank bid rate (LIBID)The rate paid by banks buying fundsLondon interbank offer rate (LIBOR)The rate offered for sale of the fundsTime deposits with fixed maturitiesLargest short term security in the worldGlobal: Birth of the EurodollarThe Eurodollar market is one of the most important financial markets, but oddly enough, it was fathered by the Soviet Union.In the 1950s, the USSR had accumulated large dollar deposits, but all wer