Money Market Conventions/Value Dates/Bid and Offer

Nostro and Vostro Accounts

  • Maintained by banks to facilitate the transfer of huge sums of foreign currencies between counterparties

Nostro Accounts

  • Noster – ours
  • Our account of our money held by you
  • To facilitate receipts and payment for its foreign currency contracts
  • Interest is not paid on the surplus funds
  • Interest is charged on overdrawn account

Vostro Accounts

  • Voster – Yours
  • Our account of your money by us

Typical Domestic Ringgit Rate Deposit Structure and Maturities

  • Short dates – O/N, T/N, 1 week
  • Terms, Tenors, Period, Fixed Dates – 1-12 months
  • Short date – Usually for squaring short-term cash positions
  • 3-6 Months – Used to take gap positions
  • Longer end – small due to higher exposure and transaction risk

Basis Points

  • Bids and Offers are expressed as interest rates
  • A rate quoted as a decimal percentage point is expressed in Basis points
  • A Basis point is one hundredth of a percentage point
  • One basis point is equal to 0.01%, 25 basis points is 0.25%

Day Basis Convention

  • UK instruments, 1 year = 365 days
  • US instruments, 1 year = 360 days
  • Eurocurrency instruments, 1 year = 360 days
  • Malaysia instruments, 1 year = 365 days

Two Way Price

  • Dealers quote a buy and sell price for each instrument they deal, Two Way Price
  • Bid Price, price at which market maker borrows money. The lower rate
  • Offer price, the price at which the market maker lends money. The higher rate
  • The difference between the Bid and Offer rate is the Bid-Offer spread
  • When the market is calm and trading volumes are high, the spread tends to be small

No Crossing Over Month End

  • If month end maturity date is not a good business day, the maturity date is brought backwards to the next available good business day (and not to push the date forward)
  • When the spot value date falls on a month-end (last good business day of the month) the market will be dealing for month-end to month end

Type of funds

  • One week funds, usually 7 day funds
  • Week-end funds, usually 3 day funds
  • Spot next funds, usually one day funds
  • Tomorrow next funds, usually 1 day funds, lending and borrowing 1 day in advance, lock in interest rates
  • Overnight funds, usually one day funds

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