Money Market Instruments in Bangladesh
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liyaahmed332Money Market Instruments in Bangladesh
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Powered by AIThe Assured Liquidity Support (ALS) is designed to ensure liquidity support for scheduled banks, thereby maintaining stability in the financial system. ALS typically offers liquidity help for up to 14 days, with eligibility determined by specific criteria and the requirement of offering eligible securities .
Bangladesh Bank employs Treasury Bills (T-bills) to manage short-term liquidity, offering them with tenures of 91, 182, and 364 days. These zero-coupon bonds help in borrowing funds and managing liquidity levels in the market effectively .
A reverse repo allows the Bangladesh Bank to borrow money from banks by selling securities with a promise to repurchase them. This transaction absorbs excess liquidity from the market, thus decreasing the money supply. It is the opposite of a standard repo, where the central bank provides liquidity to banks .
Fund placement allows banks to invest surplus funds into other banks or instruments such as call money, term deposits, inter-bank lending, and securities. This process aims to maximize returns on idle funds while ensuring safety and liquidity, balancing both financial gain and risk management .
Call money serves as a short-term borrowing and lending mechanism among banks and financial institutions primarily to maintain Cash Reserve Ratio (CRR) and liquidity. Its interest rate, known as the call rate, is determined by the supply and demand dynamics in the market .
Bangladesh Bank Bills, unlike Treasury Bills, are issued directly by the Bangladesh Bank rather than the government. They serve as a monetary policy instrument to absorb excess liquidity in the market and help control inflation, while Treasury Bills are used primarily for government borrowing and liquidity management .
Special Repos are utilized in exceptional or emergency situations when banks face severe short-term liquidity crises. They differ from standard repos as they offer more relaxed conditions regarding the tenure and collateral requirements to accommodate the urgent liquidity needs of banks .
Money market instruments like call money, treasury bills, Bangladesh Bank Bills, repos, and reverse repos play crucial roles in stabilizing the financial system by ensuring liquidity, managing short-term borrowing needs, and controlling inflation. Call money helps maintain CRR, while T-bills and Bangladesh Bank Bills manage liquidity and government borrowing. Repos and reverse repos adjust the money supply, supporting the banking sector's fluidity and stability .
Treasury bills (T-bills) are short-term government securities issued by the Bangladesh Bank on behalf of the Government of Bangladesh with tenures of 91, 182, and 364 days. They are zero-coupon bonds, meaning they are issued at a discount and redeemed at face value. The primary purpose of T-bills is managing short-term liquidity and government borrowing .
A repurchase agreement (repo) involves a bank selling securities to the Bangladesh Bank with an agreement to repurchase them later. This transaction allows the bank to borrow funds for short-term liquidity needs, thereby increasing the money supply in the market as the central bank injects liquidity by purchasing the securities .