summary of 5major market instruments

SUMMARY OF MAJOR MARKET INSTRUMENTS…

by FATIMA NAEEM KHADEEJA ANEES HAFIZ MUNIM BASHIR

TARIQ MANZOOR

'TREASURY BILL - T-BILL'

A short-term debt obligation backed by the U.S.

government with a maturity of less than one

year.

PROCESS.

T-bills are issued through a competitive bidding process at a

discount from par, which means that rather than paying fixed

interest payments like conventional bonds, the appreciation of

the bond provides the return to the holder.

CONT….

T-bills are sold in denominations of $1,000 up to a maximum purchase of $5 million and commonly have maturities of one month (four weeks), three months (13 weeks) or six months (26 weeks).

BANKER’S ACCEPTANCE


• A short term debt instrument issued by a firm guaranteed by commercial

bank

• This is a time draft that is drawn on and accepted by a bank (the importers

bank).The accepting Bank is obliged to pay the holder of the draft after its

maturity


• The banker accepting drafts charges an all-in-rate that consist of

discount plus the acceptance commission

• Interest Rate 1.90%


• Maturity date 30 to 180 days.

• If the exporter does not want to wait for payment, it can request to

sell BA in money market before its maturity date

ADVANTAGES

• This is especially useful when the creditworthiness of a foreign trade partner

is unknown.

• does not need to be held until maturity

• relatively safe

DEALER COMMERCIAL PAPER

DEFINITION OF COMMERCIAL PAPER

“A short term unsecured negotiable instrument consisting of

promissory notes with fixed maturity generally issued by

companies as a means of raising short term debt issued at a

discounted face value the issues promises a fixed amount at a

future date but pledges no assets”

TYPES OF COMMERCIAL PAPER

There are two major types of commercial

1. Direct paper

2. Dealer paper

TYPES DEFINITION

1. Direct paper is issued mainly by large finance companies and

bank holding companies directly to the investor.

2. Dealer paper/Industrial paper is issued by security dealers on

behalf of their corporate customers(mainly nonfinancial

companies and smaller financial companies).

PARTICIPANTS

• Issuers,

• All private sector company,

• Public sector units, non- banking companies etc,

• Investors,

• Individuals, banks, corporate.

MATURITIES AND RATE OF RETURN

• Most commercial paper is issued at a discount from par, and

yields to the investor are calculated by the bank discount method,

just like Treasury bills.

GROWTH OF COMMERCIAL PAPER•

• The volume of commercial paper has grown rapidly due to its

relatively low cost and high quality, as well as the expanding use

of credit enhancements.

COMMERCIAL PAPER ADVANTAGES

• Commercial paper represents one way for large firms to borrow

money for the short term.

• Companies issue the commercial paper for less than its face value

and buy back the paper at its face value

• Commercial paper are cheaper than a bank loan.

COMMERCIAL PAPER DISADVANTAGES

• It is available only to a few selected blue chip and profitable

companies.

• By issuing commercial paper, the credit available from the banks

may get reduced.

• Issue of commercial paper is very closely regulated by the RBI

guidelines

ELIGIBILITY FOR ISSUE OF C.P.

• The tangible net worth of the company, as per the latest audited balance

sheet, is not less than Rs. 4 crore.

• The working capital (fund-based) limit of the company from the banking

system is not less than Rs.4 crore.

• And the borrower account of the company is classified as a Standard Asset

by the financing banks

• Definition

A certificate of deposit with a minimum face value of $100000. These

are guaranteed by the bank and can usually be sold in a highly liquid

secondary market, but they cannot in before maturity.

• Types

1) Dematerialized

2) Physical

NEGOTIABLE CERTIFICATES OF DEPOSIT

• Revolution:

The negotiable certificate of deposit revolutionized the world of

finance. Introduced in 1961 by first National City bank of New York

(Citibank), the flexible CD enabled large banks to quickly and

efficiency raise funds for lending. They could now draw liquidity from

investors as well as businesses and consumers.


• Market

(money)

• Major participant

(issued by major money-center

commercial banks to large

investors)


• Riskiness

(default risk depends on the strength of the issuing bank)

• Original maturity

(up to 1 year)

• Interest rate

(6.3)

SECURITY CHARACTERISTICS

• Following lines shows, Who can subscribe Certificate of deposits

Corporation

Companies

Trusts

Individuals

Associations

funds

ELIGIBILITY,MATURITY,ISSUEPRICE

The of certificate of deposits may be issued at discount on

face value. Banks financial institutions are permitted to

issue these on floating rate basis. The interest on floating

rate certificate of deposits will have to be reset periodically.

Banks must keep statutory reserve on the issue price

certificate of deposits.

Maturity of certificate of deposits should not be less than be

7 days and not more than one year. In case of financial

institution the minimum period is one year and maximum is

three year.

ELIGIBILITY,MATURITY,ISSUEPRICE

The physical Certificate of Deposits are freely transferable By endorsement and

delivery. In case of demitted Certificate of Deposits, it can be transferred in the

same manner as other Dematerialized securities.

In case of loss of Certificate of Deposits, duplicate

Certificate may be issued only after:

-A notice is given in at least one newspaper.

-There has been lapse for 15 days from the date of notice

-Invest or has to executes an indemnity bond

TRANSFERABILITY,LOSSOFCERTIFICATE,SECURITY

WHAT IS A MUTUAL FUND ?

• IT IS A TRUST THAT POOLS THE SAVINGS OF A NUMBER OF INVESTORS WHO SHARE A COMMON FINANCIAL GOAL

• PROFESSIONAL FUND MANAGERS THEN INVEST THESE FUNDS IN A WAY THAT HELPS INVESTORS ACHIEVE THEIR GOAL

• The portfolio of mutual fund is managed by a “Portfolio Manager” whose responsibility is to be invested in , and satisfies the desire of the investors

• Every day, portfolio manager counts up the value of all fund’s holding, figures out how many shares have been purchased by share holders, and then calculates the Net Asset Value (NAV) of the mutual fund, the price of a single share of the fund on that day.

NAV (NET ASSET VALUE)

A fund’s NAV fluctuates along with the value of its underlying investments. The formula for NAV is:

NAV = (Market Value Of All Securities Held By Fund+ Cash and Equivalent Holdings-Fund Liabilities ) / Total Fund Shares Outstanding

TYPES OF MUTUAL FUNDS

By structure, there are two types of mutual funds, which are:

• Open-end mutual funds

• Closed-end mutual funds

SOURCES OF PROFIT GENERATION

Dividend Capital Gains

MUTUAL FUND INDUSTRY IN PAKISTAN

• Mutual fund were introduced in Pakistan in 1962,with the public offering of National Investment (Unit) Trust (NIT) which is an open-end mutual fund in the public sector. This was followed by the establishment, of the investment corporation of Pakistan (ICP) in 1966, which subsequently offered a series of closed-end mutual funds.

MUTUAL FUND (ASSET MANAGEMENT COMPANIES IN PAKISTAN)

• NATIONAL INVESTMENT TRUST

• NBP FULLERTON ASSET MANAGEMENT LIMITED

• AKD INVESTMENT MANAGEMENT LTD

• AL FALAH GHP INVESTMENT MANAGEMENT

• AL-MEEZAN INVESTMENT MANAGEMENT LIMITED

• AMZ ASSET MANAGEMENT LTD.

• ARIF HABIB INVESTMENT MANAGEMENT LTD.

• ASKARI ASSET MANAGEMENT LTD

• HBL ASSET MANAGEMENT LTD.

• UBL FUND MANAGERS LTD.

THANK YOU .

summary of 5major market instruments

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