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Level 70

Money Market Instruments


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MM Instruments
remember as B PERCCT (b percent)
B
Banks and Development Financial Institution
BA
is a short term credit instrument created by non-financial firm and guaranteed by a bank to pay
p
population proportion
PIB
issued by SBP on behalf of Federal Govt. There are only long term debt securities from 3 to 30 years
Features of PIB
remember as WIZITS (visits)
W
Withholding tax @10% applicable on interest
I
Issued on Par Value
Z
Zakat is not applicable
T
The Central Bank - like SBP
s
sample standard deviation
E
Eurodollars
Eurodollars
U.S dollar deposited in foreign banks outside the United States or in foreign branches of U.S banks
R
Repos and Reverse Repos.
Repos
Repurchase agreement(repos) a form of overnight borrowing backed by govt. securities
Reverse-Rep
opposite of repo. Dealer buys govt. securities from investors and sell them back at later date
R-Repo
term of borrowing is more than 30 days
C
Call Money Market
Call Money
a non-collateralize clean lending/borrowing of rupee funds on an overnight basis
Brokerage of Call Money
No of days x Principal x *0.0325 (brokerage rate)
CD
is interest bearing deb instrument offered by financial institutions
T-Bills
short term govt. securities. mature in one year or less from their issue date
Calculation
Y=(S-P)/P times 365/N. P: Purchase, S: Sell and N: Number of days
Treasury Bills
Short-term debt securities issued most commonly by the federal government.
Federal Funds
funds in the accounts of commercial banks at the Federal Reserve Bank
repurchase agreements
an agreement involving the sale of securities by one party to another with a promise to repurchase the securities at a specified price on a specified date; essentially a collateralized fed fund loan with collat…
commercial paper
an unsecured short-term promissory note issued by a corporation to raise short-term cash, often to finance working capital requirements; generally sold with maturities of 1 to 270 days (if maturity is greater than 270 d…
Negotiable Certificate of Deposit
Bank-issued time deposit that specifies an interest rate and maturity date and is negotiable, (can be sold by the holder to another party).
Banker's Acceptance
Time draft payable to a seller of goods, with payment guaranteed by a bank.