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Session 1 - Lecture Notes

The document provides an overview of the global financial markets structure and key participants. It discusses the various institutional participants like governments, commercial banks, non-bank financial institutions, and corporations. It also outlines the different types of markets including over-the-counter markets and exchanges. Money markets and their participants like central banks, commercial banks, and non-financial institutions are explained. The roles of central banks in monetary policy and their use of open market operations are summarized. Foreign exchange markets and their onshore and offshore components are also briefly introduced.

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96 views

Session 1 - Lecture Notes

The document provides an overview of the global financial markets structure and key participants. It discusses the various institutional participants like governments, commercial banks, non-bank financial institutions, and corporations. It also outlines the different types of markets including over-the-counter markets and exchanges. Money markets and their participants like central banks, commercial banks, and non-financial institutions are explained. The roles of central banks in monetary policy and their use of open market operations are summarized. Foreign exchange markets and their onshore and offshore components are also briefly introduced.

Uploaded by

Qamber Ali
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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Treasury

& Fund Management



Session 1
Global Financial Markets Structure

Institutional Participants in Global Financial Markets



Governments Commercial Banks NBFIs Corporations



USA, Eurozone, G20, PIGS, BRIC, Emerging Markets, Frontier Markets

Products: FX, Money Markets, Fixed Income, Equities, Derivatives, Commodities,
Credit

Market Types: Over-The-Counter (OTC) Exchanges – Stocks, Financial &
Commodity Futures


Supra-National Institutions
Regulators: Central Bank, SEC
IMF, World Bank, FATF


Market Evolution in the 21st century

The Positives:
- Overall, stock markets have gone up – wealth
has increased
- Trade has increased many fold – FX flows
have skyrocketed
- Technology has made it easier to be involved
in the Financial Markets – trade from home
- Oil prices have dropped
- World-wide inflation has dropped

The Not-So-Positives:

- 9/11 and the related market set-backs
- 2008 Sub-Prime Crisis and the Greek problem
- Slowdown in financial innovation - derivatives
- Need for Governments &Financial Institutions
to fight against Money Laundering & Terrorist
Financing
- FATF Strengthening & Wolfsberg Standards
- Strengthening of Compliance & Higher Capital
Requirements – business impact


Recommended Reading:

A Random Walk Down Wall Street,
Burton Malkiel



Session 1
Products & Paarticipants

Money Markets

What constitutes Money Markets?

Ø Money: Cash & Current Account Deposits
Ø Near-Money: Under 1 Year - Term Deposits
& T-bills

Market Participants:
Ø Commercial Banks collect Demand & Time
Deposits and used Money Markets to:
o Maintain Required Liquidity (CRR, SLR)
o Invest excess liquidity at the highest
possible return
o Borrow funds at the lowest possible
cost
Ø Central Banks/Treasury regulate the
country’s monetary system
o Print Money
o Regulate Money Markets
o Manage Monetary Policy through OMO
in the Money Markets
o Ensure Price Stability - Manage Inflation
o Produce real economic growth
o Manage External BoP
o Keep the nation at full employment
o Manage the national currency’s parity

Ø Central Bank’s Open Market Operations
o Buy & Sell MM Instruments
o Purchase & Sale of foreign currency
against local currency
o Changing the borrowing cost for banks
– Policy Rate
o Changing Reserve Requirements for
banks to manage available liquidity
o Issuing other specific regulations on the
rate & asset type banks are allowed to
hold


Other Market Participants:
Ø Non-Bank Financial Institutions
Ø Non-Financial Institutions (Corporations)
Ø Not-For-Profit Companies
Ø Individuals: Checking & Saving Accounts, T-
bills, Transaction Pmts

Foreign Exchange Markets:

Ø Onshore Dollar Market: US Domestic
Market

Ø Off-shore Dollar Market: Euro-dollar Market
o After WW2, Dollar Reserves of Eastern
Bloc were moved to London and not the
USA due to mistrust – Euro-dollars

Ø Asian Dollar Market: South East Asian
Market

Ø Off-shore markets are less tightly regulated,
and can offer higher yields on deposits.


Ø Euro-markets exist for all major currencies
and the main centers are:
o London, Tokyo, Singapore, Nassau &
Bahrain because of:
§ No restrictions on inflows and
outflows
§ No regulation affecting cost of euro-
currency deposits

Main Participants in FX Markets are:
Ø Commercial Banks – Trade, FX Trading
Ø Corporations- Trade
Ø Central Banks- Currency Management


Recommended Reading:

Chapter 1
Foreign Exchange & Money Markets (FE&MM)
Heinz Riehl & Rita M. Rodriguez

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