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Contents
Contents
1 Context: the financial system 8
1.1 Learning objectives 8
1.2 Introduction 8
1.3 The financial system 9
1.4 Allied participants in the financial system 19
1.5 Summary 19
1.6 Bibliography 20
2 Overview 21
2.1 Learning objectives 21
2.2 Definition 21
2.3 Primary money market: supply of and demand for short-term funds 30
2.4 Organisational structure of the money market 36
2.5 Money (deposit) creation in the money market 39
2.6 Interbank deposit / loan market 42
2.7 Money market interest rates 44
2.8 Money market derivative markets 46
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Contents
2.9 International aspects of the money market 46
2.10 Economics of the money market 48
2.11 Summary 50
2.12 Bibliography 50
3 Interbank market & monetary policy 51
3.1 Learning outcomes 51
3.2 Introduction 52
3.3 Bank to central bank interbank market (required reserves) (b2cb IBM) 53 3.4 Bank to bank interbank market at the final interbank clearing
(reserve funds market) (b2b IBM) 55
3.5 Central bank to bank interbank market (liquidity shortage) (cb2b IBM) 61
3.6 The money market identity / analysis 71
3.7 Bank to bank interbank market revisited 73
3.8 Summary 73
3.9 Bibliography 74
4 Mathematics 75
4.1 Learning objectives 75
4.2 Introduction 75
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© Deloitte & Touche LLP and affiliated entities.
360° thinking .
Discover the truth at www.deloitte.ca/careers
© Deloitte & Touche LLP and affiliated entities.
360° thinking .
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Contents
4.3 Time value of money concept 76
4.4 Simple interest 76
4.5 Compound interest 79
4.6 Broken periods of less than a year (one interest payment) 81
4.7 Discount 81
4.8 Effective rate 84
4.9 Interest-add-on securities 85
4.10 Discount securities 93
4.11 Treasury bill tender mathematics 94
4.13 Bonds with longer than six months to maturity date 96
4.14 Bibliography 96
5 Deposit & debt securities 97
5.1 Learning objectives 97
5.2 Introduction 97
5.3 Money market interest rates 99
5.4 Deposit securities 100
5.5 Debt securities 106
5.6 Summary 115
5.7 Bibliography 116
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Contents
6 Derivative instruments 117
6.1 Learning objectives 117
6.2 Introduction 117
6.3 Forwards 119
6.4 Money market interest rate future 126
6.5 Interest rate swaps 128
6.6 Options 130
6.7 Derivatives on derivatives 134
6.8 Summary 134
6.9 Bibliography 134
7 Endnotes 135
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I joined MITAS because
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�e Graduate Programme for Engineers and Geoscientists
Month 16 I was a construction supervisor in the North Sea
advising and helping foremen solve problems I was a
he s
Real work International opportunities
�ree work placements al
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�ree wo
I wanted real responsibili�
I joined MITAS because
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�e Graduate Programme for Engineers and Geoscientists
Month 16 I was a construction supervisor in the North Sea
advising and helping foremen solve problems I was a
he s
Real work International opportunities
�ree work placements al
Internationa or
�ree wo
I wanted real responsibili�
I joined MITAS because
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