Yanuar Dananjaya, Bsc.

, MM

Money Market
Short term lending and borrowing using security
Short term: less than 1 year
Majority 1 to +/- 15 days, almost all < 120 days

Money Market

Very liquid
Very low default risk
interest rate very low, close to CB interest rate

Yanuar Dananjaya, Bsc., MM

Purpose of Money Market

For borrower:

Money Market

Fulfill working capital (cash for daily operation

pay bill, pay salary, buy inventory, etc) requirement
due to mismatch between cash inflow and cash
outflow
Fulfill sudden need of cash sudden project
opportunity, sudden loss, insurance, etc
For lender:
To park excess money that may be needed
anytime
Participants: government, commercial banks,
business, investment companies, insurance
companies, mutual fund, high net worth individual

Yanuar Dananjaya, Bsc., MM

Money Market Instruments

Short maturity government bond
In Indonesia Surat Perbendaharaan Negara
Repurchase agreement (Repo)

Money Market

Sell a security (stock, bond) with promise to buy

back at future date with higher price.
In effect become discount bond with collateral.
Usually 1 15 days
Usually cannot be sold by buyer to other party
Price must be lower than value of security
Repo rate = {(Sell back Price Buying
Price)/Buying Price} X (360/day period)

Yanuar Dananjaya, Bsc., MM

Money Market Instruments (cont)

Commercial paper
Discount bond issued by companies, with
maturity less than 1 year.

Money Market

Legally is not bond simpler to issue, no need

the various requirements of issuing bond
Sometimes issued at rolling basis by company to
fund long term investment
Yield = {(par value price)/price} X (360/day
period)
Bank account
< 1 year certificate of deposit
Any company or government bond with maturity < 1
year usually only left the last coupon payment

Yanuar Dananjaya, Bsc., MM

Money Market Instruments (cont)

LIBOR market
Very similar to JIBOR for banks, very short
term

Money Market

Players are banks from all over the world

Big international bank (City, HSBC, BNP Paribas,
) has lending/borrowing network that create
LIBOR
Small banks that lend/borrow internationally with
other bank simply use LIBOR rate