Financial Management M.Com Aiou Assigment 2013

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Critically examine the features of various common money market instruments available in corporate sector of Pakistan. Also give theoretical background of the topic. Name: Bilal Ahmed
Roll no: Am552469
Course: Financial management
Level: M.com
Assignment submitted to: Prof Shoaib Saleem
Couse code: 8513
ALLAMA IQBAL OPEN UNIVERISITY

Acknowledgement

All the praises are for “Allah Almighty “whose uniqueness, oneness and wholeness are absolute. He is the one who gave me courage to gain knowledge and made it possible for to accomplish the report. All respects are for His “Holy Prophet Hazrat Muhammad” (Peace Be Upon Him) who enabled us to recognized oneness of our Creator.

Critically examine the features of various common money market instruments available in corporate sector of Pakistan. Also give theoretical background of the topic. Money Market:
The money market exists for the purpose of issuing and trading of short-term instruments, that is, Instruments where the term remaining from the date when trading takes place to the date of maturity, is of a short-term nature. History:

The money market developed because parties had surplus funds, while others needed cash.[3][4] Today it comprises cash instruments as well. Participants:
The money market consists of financial institutions and dealers in money or credit who wish to either borrow or lend. Participants borrow and lend for short periods of time, typically up to thirteen months. Money market trades in short-term financial instruments commonly called "paper." This contrasts with the capital market for longer-term funding, which is supplied by bonds and equity. The core of the money market consists of interbank lending--banks borrowing and lending to each other using commercial paper, repurchase agreements and similar instruments. These instruments are often benchmarked to (i.e. priced by reference to) the London Interbank Offered Rate (LIBOR) for the appropriate term and currency. Finance companies typically fund themselves by issuing large amounts of asset-backed commercial paper (ABCP) which is secured by the pledge of eligible assets into an ABCP conduit. Examples of eligible assets include auto loans, credit card receivables, residential/commercial mortgage loans, mortgage-backed securities and similar financial assets. Certain large corporations with strong credit ratings, such as General Electric, issue commercial paper on their own credit. Other large corporations arrange for banks to issue commercial paper on their behalf via commercial paper lines. In the United States, federal, state and local governments all issue paper to meet funding needs. States and local governments issue municipal paper, while the US Treasury issues Treasury bills to fund the US public debt. Trading companies often purchase bankers' acceptances to be tendered for payment to overseas suppliers. * Retail and institutional money market funds

* Banks
* Central banks
* Cash management programs
* Merchant Banks
Functions of the money market:
The money market functions are:
* Transfer of large sums of money
* transfer from parties with surplus funds to parties with a deficit * Allow governments to raise funds
* help to implement monetary policy
* determine short-term interest rates
Common money market instruments:
* Certificate of deposit - Time deposit, commonly offered to consumers by banks, thrift institutions, and credit unions * .Repurchase agreements - Short-term loans—normally for less than two weeks and frequently for one day—arranged by selling securities to an investor with an agreement to repurchase them at a fixed price on a fixed date. * Commercial paper - short term usanse promissory notes issued by company at discount to face value and redeemed at face value * Eurodollar deposit - Deposits made in U.S. dollars at a bank or bank branch located outside the United States. * Federal agency short-term...
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