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  3. Describe money markets and capital markets. Money markets: Concept: —Mon

Describe money markets and capital markets. Money markets: Concept: —Mon

游客2025-06-21  27
问题 Describe money markets and capital markets.
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答案 Money markets:
    Concept:
    —Money markets are exchange systems where short-term, usually less than one year, highly liquid and readily marketable credit instruments are traded.                          
Instruments traded in Hongkong money markets:
    —Negotiable certificates of deposits:
    -a financial instrument issued by a bank or a deposit-taking company as evidence of indebtedness;
    -repayable either on demand or at a determined future time;
    -carries either a fixed or floating interest rate.
    —Inter-bank lending and borrowing:
    -in Hongkong, it is an intangible market participated by licensed banks and deposit-taking companies;
    -borrowing is on unsecured and short-term basis, ranging from overnight call up to 6 to 12 months;
    -HIBOR is used to determine the offer price.
    —Floating rate notes:
    -a negotiable instrument bearing a floating interest rate and issued by a company;
    -the quality of the note will be reflected by the reception of the notes in file market;
    -a highly-rated company will offer notes with a better rate.
    —Commercial papers/ bills:
    -a form of negotiable instrument issued by companies;
    -a promissory note, unsecured and with a maturity date;
    -comparatively high yield.
    —The Exchange Fund Bills:
    -similar to the treasury bills issued in other countries;
    -investors earn no interest but receive a return based on the discount from their face value at maturity;
    -important investors are: licensed banks, deposit-taking companies, insurance companies, other financial companies and institutions;
    -advantages: highly liquid; strong credit standing; a large and expanding market.
    —The Government Bond                                       
Instruments traded in the international money markets:
    —Treasury bills.
    —Eurodollars.
    —Eurodollar certificates of deposits.                              
    Through local brokers and dealers who bring buyers and sellers together for a commission, one can easily get access to international money market instruments in Hongkong.
Capital markets:
Concept:
    —it is a market where long-term financial instruments with maturities of upwards of one year are traded.
General characteristics of the instruments:
    —greater risk;
    —less liquidity;
    —higher degree of default rate.                                   
Types of instruments:
    —Credit instruments
    -they are issues by which a lender advances funds to a borrower in return for the borrower’s IOU.
    —Equity instruments
    -they are issues by which investors supply permanent financing to firms or other borrowers including governments.
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