Money Markets and Bond Markets Reviewer

Vocabulary flashcards defining key money market participants, debt instruments, and bond market concepts from the lecture transcript.

Bureau of the Treasury (BOT)

A money market participant that sells PH Treasury securities to fund the national debt.

Banko Sentral ng Pilipinas (BSP)

The central bank of the Philippines that buys and sells PH Treasury securities as its primary method of controlling interest rates.

Money Center Banks

The largest commercial banks in the country that actively deal in the secondary money market for their customers.

Money Market Mutual Funds

Funds that allow small investors to participate in the money market by aggregating their funds to invest in large-denomination money market securities.

Treasury Bills

The most widely held and most liquid money market security, sold with 4-, 13-, 26-, and 52-week maturities in minimum denominations of ₱100,000 from the BOT.

Discounting (Money Market)

A feature of money market securities where the investor pays less for the security than its maturity value, so the increase in price over time provides the return.

Investment Rate Formula

A formula used to calculate T-bill return using the actual purchase price $P$ in the denominator: $\text{investment} = \frac{F-P}{P} \times \frac{360}{N}$.

Money Markets

Financial markets for short-term, highly liquid debt instruments with original maturities of one year or less, most maturing in less than 120 days.

Secured Bonds

Corporate bonds backed by specific collateral or property, which reduces risk and results in lower interest rates.

Mortgage Bonds

A type of secured corporate bond backed by real property, such as a building.

Equipment Trust Certificates

A type of secured corporate bond backed by tangible equipment, such as heavy equipment or airplanes.

Unsecured Bonds

Corporate bonds with no specific collateral pledged to repay the debt, carrying higher risk and higher interest rates.

Debenture

An unsecured long-term corporate bond backed only by the general creditworthiness of the issuer.

Indenture

A contract that specifies the legal terms and conditions of a bond issue.

Junk / Speculative Bonds

Bonds rated below Moody's Baa or S&P's BBB that carry a high risk of default and offer higher potential returns.

Yield to Maturity (YTM)

The interest rate that equates the present value of a bond's future cash flows with its current price, serving as the most accurate measure of interest rate return.

Coupon Bond

A bond that pays periodic interest payments $C$ and returns the face value $F$ at maturity.

Zero-Coupon Bond

A discount bond that pays no periodic interest, is purchased below face value, and pays its face value $F$ at maturity.

Premium Bond

A bond selling at a price higher than its face value ($P > F$), where the coupon rate is greater than the YTM.

Par Bond

A bond selling at a price equal to its face value ($P = F$), where the coupon rate equals the YTM.

Discount Bond

A bond selling at a price lower than its face value ($P < F$), where the coupon rate is less than the YTM.

Current Yield

An approximation of YTM calculated as yearly coupon payment divided by current market price: $\text{Current Yield} = \frac{C}{P}$.