scholarly journals Valuation discrepancies in money market funds during market disruptions: evidence from Egypt

2020 ◽  
Vol 17 (3) ◽  
pp. 97-110
Author(s):  
Kariman Kordy ◽  
Aliaa Bassiouny ◽  
Eskandar Tooma
Keyword(s):  
Interest Rates ◽  
Global Financial Crisis ◽  
Emerging Market ◽  
Money Market ◽  
Regulatory Oversight ◽  
Accounting Regulation ◽  
Money Market Funds ◽  
Interest Rate Volatility ◽  
Asset Value ◽  
Accumulated Losses

Money market funds (MMFs) are generally considered safe investment vehicles, but the 2008 global financial crisis showed their vulnerability during market disruptions resulting in increased regulatory oversight across developed markets to protect investors. This paper examines the effect of MMF accounting regulation on investors in an emerging market context. It hypothesizes that the continued use of amortized cost methods to account for MMFs’ Net Asset Value (NAV) during market disruptions can result in unfair treatment of investors. The Egyptian money market provided a unique laboratory to test this hypothesis over a prominent economic crisis that combined high levels of interest rate volatility with a redemption-only structure for MMFs. A model that measures the discrepancies between the amortized and floating market NAVs per certificate for various money market portfolios (MMPs) simulating MMFs of different durations is tested using the Egyptian data. A sharp rise in interest rates is found to lead to significant discrepancies between the amortized NAV per certificate relative to their floating value. Serial investor redemptions of the certificates compound the discrepancies, but only certificate holders remaining in the funds bear the accumulated losses, which are augmented for portfolios with higher durations. The results suggest that emerging market regulators consider introducing the rules that switch to floating NAV calculations for MMFs during such periods to promote equality across all investors.

scholarly journals The Role of Money Market Funds (MMFs) in the Austrian Theory of Money: a Comment on Money and the Business Cycle

2018 ◽  
pp. 333-352
Author(s):  
Olav A. Dirkmaat
Keyword(s):  
Interest Rates ◽  
Great Part ◽  
Money Market ◽  
Bank Run ◽  
Money Market Funds ◽  
Negative Interest Rates ◽  
Asset Value ◽  
The Business Cycle ◽  
Interest Payments

Money market funds (MMFs) represent $3 trillion dollars in finan- cial industry assets. However, regulations regarding MMFs have increased substantially after various of them have “broken the buck” in the 2008 crisis. Moreover, negative interest rates have  destroyed a great part of the MMF industry in Europe, since it is impossible to maintain a stable net asset value (NAV) and pay div- idends (which can be considered de facto interest payments) when the underlying assets have negative yields. Yet, despite the recent exodus of MMFs, MMFs rarely get into trouble. In 1978, First Multi- fund for Daily Income (FMDI) went bankrupt, with investors even- tually taking a 6% loss. Yet the average maturity of FMDI’s assets was longer than two years, so FMDI could hardly be considered a MMF. In 1994, the Community Bankers Fund “broke the buck,” leading to a 4% loss to shareholders; curiously, no “redemption run” (equivalent of a bank run) occurred. In 2008, the Reserve Pri- mary Fund “broke the buck” due to their exposure to Lehman, but eventually paid back 99 cents on the dollar (1% loss).  

Growth Prospects for Advanced and Emerging Market Economies

2016 ◽  
Vol 16 (4) ◽  
pp. 599-614 ◽  
Author(s):  
Dominick Salvatore
Keyword(s):  
Financial Crisis ◽  
Interest Rates ◽  
Global Financial Crisis ◽  
Emerging Market ◽  
Emerging Market Economies ◽  
Fiscal Stimulus ◽  
Secular Stagnation ◽  
Market Economies ◽  
The World ◽  
Growth Prospects

This paper examines the reasons for the slow growth in the advanced countries since the recent global financial crisis, the slowdown in growth or recession in emerging market economies, the danger that the world may be drifting toward a new global financial crisis, and that it may face even secular stagnation. The paper concludes that growth is likely to remain slow for the rest of this decade in advanced countries and to continue to decline in emerging market economies. It also examines the danger that with interest rates at the zero-bound level in advanced nations, a new financial bubble may be in the making as investors, in search of returns, undertake excessively risky investments, and that this may lead to a new global financial crisis. It is not certain, however, that the world is facing secular stagnation and, if so, that a new massive fiscal stimulus (as advocated but some) would prevent it or correct it.

scholarly journals The influence of interbank money market stress levels on credit markets during the postcrisis period in the US and the Euro area

2011 ◽  
Vol 56 (189) ◽  
pp. 7-26
Author(s):  
Djordje Djukic ◽  
Malisa Djukic
Keyword(s):  
Interest Rate ◽  
Interest Rates ◽  
Euro Area ◽  
Global Financial Crisis ◽  
Money Market ◽  
Stress Indicators ◽  
Money Markets ◽  
The Us ◽  
High Yields ◽  
The Global Financial Crisis

Despite the anti-crisis measures in the US and the euro area that were the policy response to the global financial crisis in 2007 and 2008, the stress on the interbank money market was still present in 2009 and 2010. The increasing inflationary pressures will require an increase in the ECB key interest rate in the second half of 2011. The over indebted euro area countries will have to raise funds by issuing and selling bonds with high yields. Taking into account such an environment, in this paper we analyze the relevant interbank money market stress indicators during 2010 and the beginning of 2011, in order to estimate the effects of money markets interest rate movements on credit market interest rates, primarily in the euro area, during the post-crisis period.

scholarly journals Reform of key interest rates on the money market and some implications for credit markets

2021 ◽  
Vol 3 (2) ◽  
pp. 189-199
Author(s):  
Đorđe Đukić
Keyword(s):  
Financial Crisis ◽  
Financial Markets ◽  
Interest Rates ◽  
Global Financial Crisis ◽  
Banking Industry ◽  
Credit Markets ◽  
Money Market ◽  
Mortgage Markets ◽  
Significant Events ◽  
The World

Ongoing reform of key interest rates on the money market is one of the most significant events on financial markets in the world. This is due to the fact that most of the LIBOR rates in different currencies will be discontinued at the end of 2021. Cessation of LIBOR after a number of scandals following emerging global financial crisis in 2008 lead to existence of more benchmark rates constructed as risk-free rates based on transactions, from SOFR in the U.S.A. to SARON in Switzerland. Intention of EU regulators is to replace EURIBOR with ESTR in the future so that ESTR becomes benchmark for EU and EFTA. The last analysis of lenders and borrowers' positions indicates that EURIBOR is satisfactory reformed based on the fact that in its determination data about transaction and expert judgment are included. According to the current prevailed thinking in the banking industry EURIBOR could be continually used. True, not necessarily on the derivatives market, but certainly on the credit and mortgage markets which are particularly related to EURIBOR in eurozone.

scholarly journals Impact of Monetary Policy on Trade Credit and Bank Credit in an Emerging Market Economies: Empirical Evidence in the Indonesia Stock Exchange

2019 ◽  
pp. 131-139
Author(s):  
Liasulistia Ningsih ◽  
Noer Azam Achsani ◽  
Syamsul Hidayat Pasaribu
Keyword(s):  
Monetary Policy ◽  
Interest Rates ◽  
Trade Credit ◽  
Global Financial Crisis ◽  
Stock Exchange ◽  
Emerging Market ◽  
Negative Relationship ◽  
Bank Credit ◽  
Annual Data ◽  
Alternative Source

The global financial crisis of trigger Bank Indonesia to implement a monetary contraction policy by increasing the central bank's benchmark interest rate. This increase in interest rates will increase lending rates which burden creditors. Therefore creditors will shift loan from bank credit to trade credit. This study aims to analyze the effect of monetary policy on corporate credit in the form of bank credit and trade credit as an important source of financing for company profitability by using the simultaneous panel analysis method. The data used are annual data from 2015-2018 with a total cross-section of 109 companies listed on the Indonesia Stock Exchange. The results showed that the increase in interest rates as an indicator of monetary policy could increase lending on trade credit and reduce demand for lending on bank credit. This shows that the type of funding from trade credit has an important role as an alternative source of external financing when the Bank Indonesia implements a monetary contraction policy. The negative relationship between trade credit and bank credit proves that trade credit can be used instead of bank credit.

scholarly journals A Risk-Adjusted Evaluation Of The JSE Top 40 As An International Investment Option

2014 ◽  
Vol 30 (6) ◽  
pp. 1639
Author(s):  
Andreas G. Heymans ◽  
Chris Van Heerden
Keyword(s):  
Financial Crisis ◽  
Emerging Markets ◽  
Interest Rates ◽  
Global Financial Crisis ◽  
Traditional Approach ◽  
Emerging Market ◽  
International Investment ◽  
Novel Approach ◽  
Omega Ratio ◽  
Top 40

In response to the wealth destruction caused by the 2007/2008 global financial crisis, many developed economies have lowered their interest rates to improve their balance sheets (SARB, 2008-2012). However, in order for investors to sustain expected returns they will have to deviate from the traditional approach of investing in government bonds and consider investing in emerging markets, which are considered as potential drivers of global growth (Deloitte Consulting LLP, 2012). The goal of this paper is to establish the importance of considering South Africa as an emerging market investment opportunity, but also to acknowledge its ability of outperforming several other common emerging markets during the post-financial crisis period. This was done by means of a novel approach to the Omega ratio. The results from this paper confirms this, illustrating that the performance of the JSE Top 40 will compensate for the additional political risk that emerging market investments possess (Anshuman, 2010).

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