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Introduction:

This course seeks to cover the salient features of the global money market, that is, debt securities with an original term to maturity of less than one year. The various securities, their process of creation, the related yield calculations, and their uses and applications are dealt with in adequate detail.

In addition to imparting knowledge on the market and the instruments available in it, the course seeks to provide a firm grounding on the role of the central bank and commercial banks, from the standpoints of money creation, monetary policy, and market regulation. Consequently, this course is essentially a synthesis of Finance and Macroeconomics. Considering that Economics is the foundation of Finance, the course is an attempt to provide the student with an integrated picture. However, despite the emphasis on theory, the course has a strong practical focus. The global market for these instruments, the market conventions, and the required mathematics are covered in adequate detail.

There is no pre-requisite for this course, nor is there a prescribed text book. Detailed handouts will be provided to the students, along with copies of all the PPTs used. The PPTs are deliberately exhaustive, to facilitate their use as study material.

Evaluation:

There will be a quiz, a homework and a final examination. The quiz will be multiple choice with 40% negative marking. The homeworks have to be done in groups of 4-5. The use of EXCEL is strongly encouraged. The end-term may be a case or a conventional question paper. The weightages for the components are as follows:

Quiz – 30%

Homework – 20%

End-term – 50%

Session-wise Details:

Lecture-1: Money –An Introduction

· The globalization of money banking and financial markets
· Money and banking in the digital age
· Money: Its functions, forms, and evolution
· Defining and measuring the amount of money in circulation
· Reserve requirements and deposit expansion
· The central bank, electronic impulses and deposit expansion
· Deposit expansion and the money multiplier
· Extended money and credit multipliers
· Electronic money and the money multiplier
· Motives for holding money
· The transactions demand
· The portfolio demand

Lecture-2: Monetary Policy, Interest Rates, and the Economy

· Aggregate expenditures, interest rates, and economic activity
· Monetary policy and the equilibrium interest rate
· The transmission of monetary policy
· Aggregate demand and monetary policy
· Monetary policy, real GDP and the price level
· The instruments of monetary policy
· The demand for depository institution reserves
· The supply of depository institution reserves
· The market for reserves, interest rates, and the Quantity of Money

Lecture-3: The Federal Reserve

Lecture-4: Concepts of Yield

Lecture-5: The Instruments in Brief and The Role of Dealers

Lecture-6 and Lecture-7: Treasury Bills and Federal Funds

· Primary dealers
· Auction procedures
· Single Price/Yield auctions
· Multiple Price/Yield Auctions
· Calculating Discount and Price with Rate of Discount given
· Calculating Rate of Discount with Dollar Discount or Price given
· Measures of Yield on a T-bill
· Equivalent simple yield
· Bond Equivalent Yield: A Short Bill
· Bond Equivalent Yield: A Long Bill
· Less than 182 days to maturity
· More than 182 days to maturity
· T-bill futures
· The TED spread
· Trading in Federal Funds
· Role of correspondent banks
· Term Federal Funds
· Federal Fund Futures

Lecture-8: Commercial Paper and Certificates of Deposit

· Issuers of paper
· Investors in paper
· Bank guarantees and LCs
· Credit Ratings
· Dealer paper
· Direct paper
· Euro paper
· Certificates of Deposit: The Role of Banks
· Price quotes
· Yield given price
· Price given yield
· Reserves requirements and FDIC Insurance
· Holding Period Yield on a CD sold before maturity
· A New-Issue CD
· A Secondary CD
· Variable rate CDs
· Euro and Intermediate-Term CDs
· Calculating Price given Yield
· Yankee CDs

Lecture-9: The Eurodollar Market

· Definition of Eurocurrency
· Reasons for the growth of the euro market
· Eurodollar loans
· Eurocurrency deposits
· LIBOR and the BBA
· SONIA and EURONIA
· EURIBOR
· Eurobonds
· Eurodollar CDs
· Eurodollar futures
· Hedging borrowing rates
· Hedging lending rates
· Stack and Strip Hedges
· Eurocurrency swaps

Lecture-10: Repos and Reverses & Bankers’ Acceptances

· Credit risk
· Margins
· Open repos
· Term repos
· General Collateral Finance repos
· The Central Bank and the use of Repos
· The Reverse Market
· BA’s: The Instrument
· Bank pricing and sale
· Risk factors
· With and without recourse

Created By: Debasis Mohanty on 07/29/2009 at 10:35 AM
Category: PGDM-II Doctype: Document