MAS 2 Glossary of Key Terms

Banker's acceptance

A bank-guaranteed time draft used to finance international trade, tradable as a money market instrument.

BSP (Bangko Sentral ng Pilipinas)

The Philippine central bank, responsible for monetary policy.

BTr (Bureau of the Treasury)

The Philippine government agency that issues and auctions Treasury bills and bonds.

Capital market

The market for debt and equity instruments with a maturity greater than one year.

Commercial paper

Unsecured, short-term debt issued by large, creditworthy corporations.

Discount rate (T-bill)

The quoted rate of return on a T-bill, computed on a 360-day basis and divided by par value — understates the true yield.

Federal funds

Short-term loans of reserve balances between depository institutions.

Fisher effect

The relationship stating that the nominal interest rate approximately equals the real interest rate plus expected inflation.

Forward rate

The interest rate implied by today's yield curve for a future period, derived using expectations theory.

Government Securities Eligible Dealers (GSEDs)

banks authorized to bid in BTr primary auctions.

Interest rate corridor (IRC)

The BSP's policy framework: a target rate bounded by a deposit floor and a lending ceiling.

Liquidity preference theory

The theory that interest rates are determined by the supply of and demand for money balances (Keynes).

Liquidity premium theory

The term-structure theory holding that investors require extra compensation to hold less-liquid, longer-term securities.

Loanable funds theory

The theory that interest rates are determined by the supply of and demand for loanable funds in the credit market (Wicksell).

Market segmentation theory

The term-structure theory holding that investors and borrowers concentrate in maturity markets matching their needs.

Money market

The market for debt instruments with an original maturity of one year or less.

Negotiable certificate of deposit (NCD)

A large bank time deposit that can be sold in a secondary market before maturity.

Nominal interest rate

The stated, quoted interest rate, unadjusted for inflation.

The Philippine Dealing & Exchange Corp. (PDEx)

the secondary market for fixed income securities.

Preferred habitat theory

The term-structure theory holding that participants normally stay in a natural maturity market but will move for sufficient extra yield.

Pure expectations theory

The term-structure theory holding that long-term rates are a geometric average of expected future short-term rates.

Real interest rate

The nominal interest rate minus expected inflation; measures growth in actual purchasing power.

Repurchase agreement (repo)

A short-term collateralized loan structured as a sale of securities with an agreement to repurchase them later.

Risk premium

The additional yield investors demand above the risk-free rate, reflecting credit risk, liquidity risk, tax status, and maturity.

SEC (Securities and Exchange Commission)

The Philippine agency that registers corporate securities such as STCPs.

STCP (Short-Term Commercial Paper)

The Philippine equivalent of U.S. commercial paper; SEC-registered, 30 days to 1 year, taxed as a deposit substitute.

Term structure of interest rates

The relationship between a security's maturity and its yield, holding other characteristics constant.

Treasury bill (T-bill)

A short-term government security sold at a discount from par, with no periodic coupon.

Yield curve

A graph plotting yield against maturity for otherwise-similar debt securities.

Treasury bills

Auctioned weekly; registered in the BTr's scripless registry (NROSS)

Commercial Paper

SEC-registered; 30 days-1 year; treated as a deposit substitute and subject to a 20% final withholding tax

Negotiable Certificate of Deposit

Issued by universal/commercial banks; traded over-the-counter

Repurchase Agreement

Used for interbank liquidity management and BSP open market operations

Federal Funds

The Philippine short-term interbank benchmark, steered by the RRP rate

Banker's acceptances

Far less securitized and tradable locally than in the U.S. market