This eCourse consists of two modules. Module 1 examines the important role played by money market funds (MMFs) in the wholesale money markets. It explores the difficulties that money market fund managers face in terms of counterparty credit risk and in identifying investment products that will deliver a better return than bank deposits. Key regulatory requirements in relation to issues such as credit quality, liquidity, diversification, and maturity are also discussed. Finally, the module describes the accounting approach to the valuation of MMF assets and the use of net asset value (NAV) in this process.
Module 2 explores the various funding methods used by banks as well as the risks involved. Banks earn income on the assets shown on their balance sheets. These assets include cash, loans to customers/clients, trading positions, and other investments ?all of which must be funded by the bank on the liabilities and equity side of the balance sheet. The risks involved in funding methods were exposed by the global financial crisis, with the result that regulators imposed strict requirements concerning bank funding and introduced a number of liquidity ratios in this regard. These are also described in this module. In addition, the tutorial focuses on how various money market positions are created and covered, together with an explanation of the management of interest rate gap exposures on mismatched future cash flows.
On completion of this course, you will be able to:
- Identify the various features and characteristics of money market funds
- Compare the different valuation methods for money market funds, namely constant net asset value (CNAV) and variable net asset value (VNAV
- Recognize how a bank funds its assets through its liabilities and equity
- Identify the different money market positions that bank must manage on a daily basis
- Measure the gap exposure that a bank can be exposed to as a result of its business and trading operations
Module 1: Money Market Funds
Topic 1: Overview of Money Market Funds
Topic 2: Valuation of Money Market Funds
Module 2: Bank Funding & Position Management
Topic 1: Bank Funding
Topic 2: Managing Money Market Positions
Topic 3: Managing Gap Exposures