Money Market in Pakistan

Hira Zulfiqar
12734

Money market is a segment of the financial

market in which financial instruments with
high liquidity and maturities of one year or less
are traded.

Advantages:
Short maturities
Low risk
Highly liquid
Marketable securities

Disadvantages:
Low returns
Cost of reinvestment
Reinvestment risk

Money Market Instruments

1.
2.
3.
4.
5.

Treasury bills
Commercial papers
Certificate of deposit
Repurchase agreements
Bankers acceptance

Treasury bills
zero coupon instrument issued by the Government
of Pakistan
sold through the State Bank of Pakistan via
fortnightly auctions
Have maturities of 3-months, 6-months and 1 Year
and are priced at a discount.
risk free, SLR eligible securities, that are actively
traded in the secondary market and are therefore
highly liquid.
issued in multiples of PKR 5,000

Commercial papers
unsecured obligations issued by large corporations
to finance their short term financial needs of, like
working capital
maturities typically range from 30 to 270 days
not backed by any form of collateral, so only firms
with strong credit ratings can find buyers easily
can either be discounted or interest-bearing

Eligibility for issue of commercial paper

Equity of the company should not be less than
Rs.100 million
Company maintains a minimum current ratio of
1:1 and debt to equity ratio, 60:40
Minimum size of the issue shall not be less than
Rs.10 million

Certificate of Deposit
a promissory note issued by a bank in form of a certificate
entitling the bearer to receive interest
more like a bank term deposit account
certificate bears the maturity date, the fixed rate of
interest and the value
maturity ranges from 7 days upto 1 year
example: Standard Chartered Banks Rupee Term
Deposit available in tenors ranging from 7 days to 3 years

Repurchase Agreement
seller sells specified securities with an agreement to
repurchase them at a mutually decided future date
and price
similarly, the buyer purchases the securities with an
agreement to resell the same to the seller on an
agreed date at a predetermined price
Repurchase price > original sale price
Securities serve as collateral

Types of Repo (in terms of maturity)

1. Open repo has no fixed maturity date and can
be terminated on any day in the future by
either party
2. Term repos have maturities ranging from 30
to 90 days
3. Overnight repos have a 1 day term

 SBP also offers lending facility to bank and financial

institutions on 3 day repo basis
SBP reverse repo rate ( also known as policy rate or
discount rate) is the rate at which banks borrow from
SBP on an overnight basis
Currently the reverse repo rate is 10
Increase in this rate gives a signal of monetary
tightening

Bankers Acceptance
negotiable time draft drawn on a bank, typically
to finance trade related transactions
is issued by the customer and is an order for the
bank to pay a provider of goods a certain amount
of money at a predetermined date.

 maturities of bankers acceptance mostly range

from 30 to 180 days
promissory uses banks credit worthiness instead
of his own

Thank you.