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Money Market: An Introduction

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Language:  English
The money market has traditionally been defined as the market for short-term marketable debt instruments, such as commercial paper (CP) and treasury bills (TBs). It is much more than this.
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The money market has traditionally been defined as the market for short-term marketable debt instruments, such as commercial paper (CP) and treasury bills (TBs). It is much more than this. It embraces all short-term lending and borrowing, marketable and non-marketable, and includes the significant interbank market. It is in this market that interest rates have their genesis. There are three interbank markets: one where the rate is set administratively by the central bank [the policy or key interest rate (KIR), aka bank rate, discount rate, repo rate, etc], one which does not have a rate (there are exceptions), and the other one where banks compete fiercely among one another for reserves (called federal funds in the US) in order to avoid borrowing from the central bank. The outcome of the latter is the bank-to-bank interbank market (b2b IBM) rate and it closely follows the KIR. All deposit rates follow the KIR and the b2b IBM rate, as does the banks’ prime lending rate (PR, a benchmark rate). PR is the target rate of monetary policy, as money (ie, mainly deposits of the private sector) creation is the outcome of bank credit extension (in the main). Thus, monetary policy is aimed at influencing the demand for credit and its outcome, money creation. This economically-significant process plays out in the money market.

  1. Context: the financial system
    1. Learning objectives
    2. Introduction
    3. The financial system
    4. Allied participants in the financial system
    5. Summary
    6. Bibliography
  2. Overview
    1. Learning objectives
    2. Definition
    3. Primary money market: supply of and demand for short-term funds
    4. Organisational structure of the money market
    5. Money (deposit) creation in the money market
    6. Interbank deposit / loan market
    7. Money market interest rates
    8. Money market derivative markets
    9. International aspects of the money market
    10. Economics of the money market
    11. Summary
    12. Bibliography
  3. Interbank market & monetary policy
    1. Learning outcomes
    2. Introduction
    3. Bank to central bank interbank market (required reserves) (b2cb IBM)
    4. Bank to bank interbank market at the final interbank clearing (reserve funds market) (b2b IBM)
    5. Central bank to bank interbank market (liquidity shortage) (cb2b IBM)
    6. The money market identity / analysis
    7. Bank to bank interbank market revisited
    8. Summary
    9. Bibliography
  4. Mathematics
    1. Learning objectives
    2. Introduction
    3. Time value of money concept
    4. Simple interest
    5. Compound interest
    6. Broken periods of less than a year (one interest payment)
    7. Discount
    8. Effective rate
    9. Interest-add-on securities
    10. Discount securities
    11. Treasury bill tender mathematics
    12. Bonds with longer than six months to maturity date
    13. Bibliography
  5. Deposit & debt securities
    1. Learning objectives
    2. Introduction
    3. Money market interest rates
    4. Deposit securities
    5. Debt securities
    6. Summary
    7. Bibliography
  6. Derivative instruments
    1. Learning objectives
    2. Introduction
    3. Forwards
    4. Money market interest rate future
    5. Interest rate swaps
    6. Options
    7. Derivatives on derivatives
    8. Summary
    9. Bibliography
  7. Endnotes
This book is so important for every new participant. It is very easy for the learner and it has all the info required for a new learner.
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About the Author

Prof. Dr AP Faure

Alexander Pierre Faure graduated from Elsenburg Agricultural College after school and went on to Stellenbosch University where he graduated with BA (Commerce), Hons BA (Economics), MA (Economics), and PhD (Economics).

He also successfully completed the Stockbroker Examination Requirements at Witwatersrand University (and is a registered Stockbroker - presently non-broking status).

He first worked for the central bank, where he was involved in compiling the monetary statistics (money stock and sources of change, and money market liquidity analysis) and later in the execution of monetary policy.

His career after central banking included private sector banking (the recipient of monetary policy), stockbroking (influenced by monetary policy) and interest rate analysis (reading monetary policy).

After his private sector experience, he became an academic and held the positions Investec Chair in Money and Banking (at Rhodes University and the University of Fort Hare) and Foord Chair in Investments (at Rhodes University).

After retirement he was appointed Professor Emeritus at Rhodes University, and remains engaged in research.  

He has published widely, including books and papers.

He also served on a number of boards of directors, holding the positions of Non-executive Director and Managing Director.