Overview

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 tutorial 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. These risks 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 tutorial. In addition, the module 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.

Objective

On completion of this course, you will be able to:
- Identify the key features of MMFs and the influence of negative interest rates on them
- List the main types of money market fund, namely constant net asset value (CNAV), variable net asset value (VNAV), and low variable net asset value (LVNAV)
- Recognise the impact of share price rounding and accounting issues
- Recall US and European regulatory initiatives that impact MMFs
- Recognise 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

Content

Module 1: Money Market Funds
Topic 1: Overview of Money Market Funds
Topic 2: Features of MMFs
Topic 3: Types of MMF
Topic 4: Pricing & Accounting Issues
Topic 5: Regulatory Developments

Module 2: Bank Funding & Position Management
Topic 1: Bank Funding
Topic 2: Managing Money Market Positions
Topic 3: Managing Gap Exposures