FT Guide to Bond & Money Markets

FT Guide to Bond and Money Markets shows how bond & money markets work & how they impact on everyday life. Understand terms & products Explore types of markets & their functions Discover factors influencing market prices Learn how fluctuations can affect your money strategies.

Author’s Note:

Everybody’s life is touched by financial markets. This was painfully brought home to us when markets built on badly thought-through finance collapsed, triggering the long recession in 2008. Millions were thrown out of work, wages were cut, governments went bust and interest rates were slashed. Clearly we all need to have some acquaintance with what these financial instruments are and how these markets work.

This book is a simple, easy-to-follow guide to bond and money markets, which assumes no prior knowledge of finance. The emphasis is on gaining an understanding of the underlying concepts in the first half of the book, the importance of these markets and ideas in the practical world of finance. Later I introduce those elements of quantitative finance that are absolutely essential. This way, I hope, the essence of this technical subject is explained without bamboozling the reader with an overload of mathematics. It explains:

• the jargon used in the debt markets
• the wide variety of bond markets, from sovereign bonds to junk
• the vital role of money market instruments, ranging from commercial paper to interbank lending
• the valuation of these securities and how value changes as interest rates change.

Who might find the book useful?

• Market professionals needing a succinct, down-to-earth guide to throw light into an area of knowledge that they know they need to fulfil their roles effectively and advance their careers.
• People working at banks, insurance companies, lawyers’ offices and accounting firms needing to develop a good working knowledge of key financial terms and functioning of the main markets.
• University students needing more depth on bond and money markets than is provided by their main course texts.
• Those curious minds who realise they need to understand the financial markets to comprehend the modern economy.
• Private investors who might consider putting some of their savings in these markets.

The first seven chapters of this book provide an introduction to the bond markets, followed by four chapters describing the diff erent money markets. Only when you have a firm grasp of the nature of these instruments do we look at the mathematical structures required for bond and money valuations. Thus maths is reserved for Chapters 12 to 14 .

Then, in Chapters 15 and 16 , we examine some of the more unusual securities that have evolved from the markets, such as bonds where the interest paid to investors depends on monthly mortgage payments from thousands of home owners, or the trading of agreements to notionally deposit money and notionally receive interest at a future date.

Finally, we consider the importance of central banks to the workings of these markets and how the authorities try to control infl ation through altering interest rates in the money and bond markets.

Contents: