About FIMMDA securities
what is FIMMDA?
FIMMDA stands for The Fixed Income Money Market and Derivatives Association of India (FIMMDA). It is an Association of Commercial Banks, Financial Institutions and Primary Dealers. FIMMDA is a voluntary market body for the bond, Money And Derivatives Markets.
What are the objectives of FIMMDA?
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To function as the principal interface with the regulators on various issues that impact the functioning of these markets.
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To undertake developmental activities, such as, introduction of benchmark rates and new derivatives instruments, etc.
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To provide training and development support to dealers and support personnel at member institutions.
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To adopt/develop international standard practices and a code of conduct in the above fields of activity.
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To devise standardized best market practices.
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To function as an arbitrator for disputes, if any, between member institutions.
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To develop standardized sets of documentation.
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To assume any other relevant role facilitating smooth and orderly functioning of the said markets.
Who are the members of FIMMDA?
FIMMDA has members representing all major institutional segments of the market. The membership includes Nationalized Banks such as State Bank of India, its associate banks, Bank of India, Bank of Baroda; Private sector Banks such as ICICI Bank, HDFC Bank, IDBI Bank; Foreign Banks such as Bank of America, ABN Amro, Citibank, Financial institutions such as ICICI, IDBI, UTI, EXIM Bank; and Primary Dealers.
Why should my organization be a member of FIMMDA?
FIMMDA addresses issues that affect the entire industry. Some of the work done in past pertains to issues like legal and accounting norms, documentation requirements and valuation methodologies. Planned initiatives include providing training and certification to members, setting up a dispute resolution mechanism as well as creating new products and addressing the attendant details. As a member, you have the opportunity to participate in all of FIMMDA's activities and contribute to the development of the Indian debt markets.
About Fixed Income Securities-General:
What are securities?
Securities are financial instruments that represent a creditor relationship with a corporation or government. Generally they represent agreements to receive a certain amount depending on the terms contained within the agreement.
What are fixed income securities?
Fixed-income securities are investments where the cash flows are according to a predetermined amount of interest, paid on a fixed schedule.
What are the types of fixed income securities?
The different types of fixed income securities include government securities, corporate bonds, commercial paper, treasury bills, strips etc.
What is the difference between a fixed income security and equity?
Holders of fixed-income securities are creditors of the issuer, not owners. Equity represents a share in the ownership of the issuer.
What are fixed interest rate securities and floating interest rate securities?
Fixed interest rate securities are those in which the interest payable is fixed beforehand. Floating interest rate securities are those in which the interest payable is reset from at pre-determined intervals according to a pre-determined benchmark.
What are the key components of fixed income securities?
Credit quality, yield, and maturity are key components of fixed-income securities.
What is credit quality?
Credit quality is an indicator of the ability of the issuer of the fixed income security to pay back his obligation. The credit quality of fixed-income securities is usually assessed by independent rating agencies such as Standard & Poor's, Moody's in the U.S. and CRISIL in India. Most large financial institutions also have their own internal rating systems.
What is the yield on a security?
Yield on a security is the implied interest offered by a security over its life, given its current market price.
What is maturity?
Maturity indicates the life of the security i.e. the time over which interest flows will occur.
What are coupon payments?
Coupon payments are the cash flows that are offered by a particular security at fixed intervals. The coupon expressed as a percentage of the face value of the security gives the coupon rate.
Why is there a difference between coupon rate and yield?
The difference between coupon rate and yield arises because the market price of a security might be different from the face value of the security. Since coupon payments are calculated on the face value, the coupon rate is different from the implied yield.
Why do long term securities offer more return than short- term securities?
Long-term securities typically offer more return than short-term securities because investors usually prefer to lend money for shorter terms. Hence money lent out for longer terms will have a higher yield.
What are callable securities?
Callable securities are those which can be called by the issuer at a predetermined time/times, by repaying the holder of the security a certain amount which is fixed under the terms of the security.
What is the relationship between price and Yield?
Prices and interest rates are inversely related.
About Derivatives:
What are derivatives?
Derivative securities are those whose value depends on the value of another asset (called the underlying asset)
What are the different types of derivatives?
The different types of derivatives include forwards, futures, options, swaps etc.
What is a forward contract?
A forward contract is a contract to trade in a particular asset (which may be another security) at a particular price on a pre-specified date.
What is a forward rate agreement?
A forward rate agreement is an agreement to lend money on a particular date in the future at a rate that is determined today. It is like a forward contract where the underlying asset is a bond.
What is a futures contract?
Futures are standardized forward contract that are traded on an exchange and where the counter-party (the party with which the contract has been signed) is the exchange itself.
What are options?
Options are one-way contract where one party has the right but not the obligation to trade in a particular asset at a particular price on a pre-determined date/dates or in a particular time interval.
What are interest rate swaps?
Interest rate swaps are agreements where one side pays the other a particular interest rate (fixed or floating) and the other side pays the other a different interest rate (fixed or floating).
Accordingly, swaps are:
Fixed vs Floating swaps:Where one side pays the other a fixed interest rate and the other pays a floating rate determined by some benchmark and reset at fixed time intervals.
Basis swaps:Where the two sides pay each other rates determined by different benchmarks.
What are Overnight Interest Swaps?
Overnight interest rate swaps are currently prevalent to the largest extent. They are swaps where the floating rate is an overnight rate (such as NSE MIBOR) and the fixed rate is paid in exchange of the compounded floating rate over a certain period.
What is Call Money Market ?
The call money market is an integral part of the Indian Money Market, where the day-to-day surplus funds (mostly of banks) are traded. The loans are of short-term duration varying from 1 to 14 days. The money that is lent for one day in this market is known as "Call Money", and if it exceeds one day (but less than 15 days) it is referred to as "Notice Money". Term Money refers to Money lent for 15 days or more in the InterBank Market.
Banks borrow in this money market for the following purpose:
· To fill the gaps or temporary mismatches in funds
· To meet the CRR & SLR mandatory requirements as stipulated by the Central bank
· To meet sudden demand for funds arising out of large outflows.
Thus call money usually serves the role of equilibrating the short-term liquidity position of banks
Call Money Market Participants :
1.Those who can both borrow as well as lend in the market - RBI (through LAF) Banks, PDs
2.Those who can only lend Financial institutions-LIC, UTI, GIC, IDBI, NABARD, ICICI and mutual funds etc.
Reserve Bank of India has framed a time schedule to phase out the second category out of Call Money Market and make Call Money market as exclusive market for Bank/s & PD/s.
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