Please enable JavaScript.
Coggle requires JavaScript to display documents.
Money markets (Certificates of Deposit (Yields depend on (Credit rating of…
Money markets
Certificates of Deposit
Fully negotiable short term MMIs that are acknowledgements of indebtedness issued by banks and other financial organisations to other institutional investors
-
-
Can only be issued by those institutions that have been authorised to accept deposits in possession of a Part IV permission under the Financial Services and Markets Act 2000
-
The issuer will acknowledge that in relation the value of certificates issued a sum has been deposited with it on terms that the principal amount is repayable together with interest on the maturity date payable at the rate and under the terms and conditions set out
At the end of the fixed term, the deposit is returned to the investor together with interest
-
Minimum denomination of £100,000
As there is a perception of higher risk, interest rates tend to be higher than on T-Bills
Predominately issued in dematerialised form and held in CREST but they can also be issued in paper form if they keep to conditions laid down by the British Banker's Association
All CD payments are made through CREST including interest and it is necessary for both issuers and purchasers to be CREST member
-
-
Money markets
-
There a number of individual money markets each of which is defined by its own respective instrument
Derive their name because they are wholesale financial markets that deal with the buying and selling of money or near money instruments which can be converted into cash at very short notice
The money markets are considered to be a group of individual sub markets, each of which is characterised by its own inherent financial instruments with their own unique features
All of the individual markets trade in low risk unsecured debt instrument which facilitate or act as mechanisms for the movement of short term finance from those parties with a short term need for liquidity
The movement of these short term funds are facilitated by the markets key participants which are a network of banks including central and overseas banks, institutional investors and government bodies which borrow and lend among themselves
All of the individual markets are highly organised however no formal exchanges are involved and there are no central locations
Participants may be lenders in one market while being borrowers in other depending on their particular short term funding requirements
-
Money market instruments
-
All are debt instruments used by its key participants in order to facilitate the movement of large amount of short term money between themselves
-
-
The two key considerations are the short term nature of the market together with the vast sizes of the individual trades
Returns tend to be low as they are considered exceptionally safe and hence the degree of risk is deemed low
-
Have no central trading venue with dealing in MMIs taking place by telephone and also via computer terminals rather than on any formal exchange
-
-
Interbank deposits
The simplest and most liquid of all MMIs; they are available for varying maturities. The majority of interbank deposits are for three months or less. They are unsecured and are usually for a minimum amount of £500,000
-