chapter 9

Money Market: The FX Impact

LEARNING OBJECTIVES

In this chapter, an attempt has been made to give readers an overview of money market terminologies and instruments which are used for borrowing and lending for short tenors, i.e., up to one year and the interlinkage between money market and currency market. The short-term funding market and liquidity situation have become important factors in determining the direction of foreign exchange markets. The ongoing financial market crisis, comprising of sovereigns and financial institutions among others, has brought liquidity and money market health at the forefront, deciding the direction of various asset classes including foreign exchange. The contents of this chapter are organized in the following order:

 

1. Introduction

2. Interlinkage Between Money Market and Currency Market

3. Money Market Instruments

4. Most Common Interest Rate Benchmarks and Curves (Indian and Global)

5. Global Money Market Risk Indicators and Their Impact on Exchange Rate

INTRODUCTION

The term ‘money market’ refers to the market where the needs for short-term funds and their deployment are addressed. It is the market for short-term financial instruments which are close substitutes of money.

INTERLINKAGE BETWEEN MONEY MARKET AND CURRENCY MARKET

The money market is intimately linked with the foreign exchange market through the process of covered interest arbitrage in which the forward premium acts as a bridge between domestic and foreign interest rates. The same has been described below by taking Indian forward market and spot market into consideration.

For example, if one year interest rate of India implied by one year treasury bill issued by Government of India is 8.25 per cent and one year USD LIBOR is 1 per cent, then ideally forward premium shall be 7.25 per cent and this relationship shall hold at any time for any time period. However, the actual forward premium is 6 per cent.

In such a case, the covered interest arbitrage theory is disturbed, leading to arbitrage opportunities. For example, if a bank which is operating in India has access to USD funding at LIBOR then it can convert its USD into INR and utilize the INR funds for either lending to someone in call money/reverse repo or investing in treasury bill/certificate of deposit/ commercial paper approximately @ 8.25 per cent. Simultaneously, the bank can buy USD at spot rate and pay the forward premium @ 6 per cent. This would lead to arbitrage gain of 1.25 per cent to the bank.

However, in real life, forward premium in countries like India where full capital account convertibility does not exist, does violate covered interest arbitrage theory on account of the following reasons:

• Liquidity projections and INR rate view: This applies to both INR liquidity and USD liquidity.
  • INR liquidity: Market participants exercise their view on future liquidity projections through USD/INR forward curve. For example, on 22 May 2012, three months forward premium is 7.25 per cent but 12 months forward premium is 5.50 per cent. One of the reasons which can be assigned for downward sloping forward curve is the market’s expectation of CRR and repo rate cut which would lead to adequate liquidity and lower interest rates in the future. An example of how an interest rate change can impact spot USD/INR exchange rate is as follows. When in a normal market condition, there is sudden repo rate hike by Reserve Bank of India, the first reaction of the market participants would be to sell USD against INR, as market players would look to convert the excess dollars parked with them into INR as the same INR would now earn higher rate of interest.
  • USD liquidity: Shortage of USD in the market which can be caused either because of sudden outflow of USD from system or due to central bank intervention, creates demand for USD in the near term. Either of the above causes would lead to market paying higher rate of interest for buying USD and selling INR. Market participants in order to generate more USD, would begin buy/sell operation in the market, which has historically even led to forwards entering into negative territory. However, such a situation of forward premium tends to reverse when the USD liquidity in the system improves.
• View and action of corporates/Foreign institutional investors/asset liability management desk of banks in spot and forward market
  • Corporates
    • In case corporates who have export earnings believe that USD/INR outright levels (spot + forward) is attractive to sell, then they would sell USD/INR for value forward date. This would lead to sudden receiving in the market of forward premium and forward premium would come down.
    • Similarly, corporates who have either imports or have borrowed in foreign currency could find USD/INR outright level attractive to buy. This would lead to both spot and forward premiums moving up.
  • Foreign institutional investors: In case foreign institutional investors expect an outflow in future and want to protect the value of their portfolio investment, then could begin buying USD/INR for value forward date. This would lead to both forwards and spot USD/INR exchange rate moving higher.
  • Asset liability management desk: Banks who have access to USD funding for their balance sheet management may find USD/INR forward levels attractive for paying forwards. They can invest the INR generated by the process in certificate of deposit and earn the arbitrage carry.

MONEY MARKET INSTRUMENTS

Money market instruments are those instruments which have a maturity period of less than one year. The most important feature of a money market instrument is that it is liquid and can be converted into cash quickly. Also, it provides an opportunity for balancing the need for deployment of short-term surplus funds of lenders and short-term borrowing needs of various market participants.

There is wide range of participants like banks, primary dealers, financial institutions, mutual funds, trusts, provident funds, etc., which deal in money market instruments. In India, the money market instruments and the participants of money market are regulated by the RBI and the SEBI.

Overnight Call Money

Overnight call money/repo is the most dynamic segment of the money market but it is a very short-term money market product. In the past two decades, the Indian money market has come of age. In order to study the money market in India and its operations, one needs to understand the various instruments around which the money market in India revolves.

The Indian money market involves a wide range of instruments. They have maturity ranging from one day to one year. The Indian money market has strong linkage with foreign exchange (FX) market on account of multi-currency funding needs of market participants.

The following instruments form the bulk of money market in India:

• Call/Notice/Term Money Market
• Repo/Reverse Repo Rate
• Inter Corporate Deposits (ICD)
• Commercial Paper
• Certificate of Deposit
• T-bills

Call Money Market

It is an overnight market with participants being banks and primary dealers. Although it is predominantly an overnight market, but you can borrow for maturity upto 14 business days, excluding intervening holidays.

If the tenure of the borrowed money is more than one business day, the instrument is referred to as ‘notice money’ or ‘Call Money’. Both the instruments—call money and notice money—are traded in the call money market.

This market acts as a medium to all the participants to deploy their surplus funds as well as to source funds for financing their deficit on a day-to-day basis.

The call money market is highly liquid and the call money rate is a prime indicator of the liquidity situation in the entire financial system. The call money rate is the interest rate in the call money market. A fall in the call money rates indicates a rise in the liquidity in the financial system and vice versa.

Another key feature of this market is that, the borrowings are unsecured, i.e., they are not backed by any collateral. Also, the call money rates are quite volatile as the demand and supply of the short-term funds amongst the market participants often tends to vary widely. The daily turnover in the call money market runs into billions of rupees.

Notice money is called so, because in case the tenure is more than one business day, either the borrower or the lender can revoke the contract by giving a short notice.

 

The following chart shows the call money rates prevailing since Q4 of year 2009.

 

Repo/Reverse Repo Rate

Repo, abbreviation for repurchase agreement is also a form of short-term borrowing for those dealers who deal in government securities. They sell the government securities to investors, usually on an overnight basis, and make a commitment to buy them back on the following day.

• For the party selling the security (and agreeing to repurchase it in the future), it is a repo.
• For the party on the other end of the transaction, buying the security and agreeing to sell them in the future, it is a reverse repurchase agreement or reverse repo.

In India, the repo/reverse repo transactions can be done only in Mumbai and only between parties approved by the RBI and in the securities approved by the RBI such as treasury bills, central/state government securities, etc.

The screenshot from Thomson Reuters 3000Xtra of prevailing repo rate and reverse repo rate at which the RBI lends and borrows, respectively, is given in the following page.

The chart from Thomson Reuters 3000Xtra depicting the movement of repo rate from Q1 of 2010 is given in the following page.

 

 

 

Inter Corporate Deposits (ICD)

This market is used for short-term cash management for large companies. A company can raise money through two variants of the inter corporate deposits:

1. Fixed rate ICD: The interest rate of the fixed rate ICD is negotiated by the two parties at the beginning of the contract and remains same for the entire term of the ICD. As per the RBI guidelines, the minimum period of the ICD is seven days and can be extended up to a period of one year. The rates generally track interbank call money market rates.
2. Floating rate ICD: Companies can also borrow through floating rate ICD which may be benchmarked/linked to market interest rates like NSE’s MIBOR. Like fixed rate ICDs, floating rate ICDs can have tenure of seven days to a year. Typically borrowers/lenders have the right to exit the transactions after seven days.

Commercial Paper

Commercial papers are unsecured promissory notes. They have fixed maturity ranging from seven days to one year. These are money market securities, issued (sold) by highly rated corporate borrowers, primary dealers and large financial institutions for the purpose of raising funds to meet their short-term debt obligations, and are backed by the issuers’ promise only, to pay the face amount on the maturity date which is clearly specified on the note. Since they are not backed by any collateral, only firms with excellent credit ratings, from a recognized rating agency, are able to sell their commercial paper at a reasonable price.

Commercial papers are generally sold at a discount and redeemed at the face value at the time of maturity. The discount is calculated on the face value of the commercial paper. The difference between the purchase price (i.e. discounted face value) and the face value is the return earned by the buyer of the commercial paper.

The following is the screenshot from Thomson Reuters 3000Xtra displaying commercial paper rate of interest across tenors as on a particular day.

 

Certificate of Deposit

Certificate of deposit (CDs) are issued by scheduled commercial banks or financial institutions. The key advantages of CDs for issuer and investor are that they offer the banks, institutions or the issuer, an opportunity to mobilize their bulk resources for better fund management and to the investors, they offer a decent cash management opportunity with market-related yield and a relatively high degree of safety.

Similar to the commercial paper, these are also issued at a discount and redeemed at par on maturity. The RBI allows CDs to be issued up to one year maturity. However, the maturity quoted most in the market is 90 days.

The following is the screenshot taken from Thomson Reuters 3000Xtra displaying CD’s issued by various banks with their rating, maturity date and interest rates.

 

The following screenshot is taken from Thomson Reuters 3000Xtra displaying benchmark rates of CD’s for various tenors as on a particular date.

 

T-bills

Treasury bills or T-bills are those money market instruments which are issued only by the governments. These are issued to finance the short-term requirements of the government. T-bills are discounted securities which are redeemed at par. This implies that they are issued at a discount to face value and redeemed at face value. The return to the investor is the difference between the maturity value and the issue price.

There are different types of T-bills based on the maturity period such as three months, 12 months T-bills, etc. In India, at present, the active T-bills are the 91-days and 364-days T-bills.

Investment in T-bills has the following advantages over other forms of investments such as bank deposits:

• Zero default risk, since it is a sovereign paper
• High liquidity
• Transparency and simplified settlement
• High degree of tradability and active secondary market (helping the investors in meeting unplanned fund requirements)

The following screenshot is taken from Thomson Reuters 3000Xtra displaying detail of six months T-bill issued by the government of India on a particular date.

 

 

MOST COMMON INTEREST RATE BENCHMARKS AND CURVES (INDIAN AND GLOBAL)

MIBOR

MIBOR or Mumbai Interbank Offer Rate^* is calculated by the National Stock Exchange (NSE) on daily basis. It is the average of call money rates offered and accepted by a set of specific banks on a given day. For taking the average, NSE collects quotes from the specific set of banks regarding their respective rates for overnight funding. This average rate acts as an index and serves the purpose of a reference rate to which various organizations can benchmark their short-term interest rate.

The Committee for the Development of the Debt Market studied and recommended the modalities for the development for a benchmark rate for the call money market.

Accordingly, NSE developed and launched the NSE Mumbai Interbank Offer Rate (MIBOR) for the overnight money market on 15 June 1998. The success of the Overnight NSE MIBID MIBOR encouraged the exchange to develop a benchmark rate for the term money market. NSE launched the 14-days NSE MIBID MIBOR on 10 November 1998 and the longer term money market benchmark rates for one month and three months on 1 December 1998.

Further, the exchange introduced a three days FIMMDA-NSE MIBID-MIBOR on all Fridays with effect from 6 June 2008 in addition to the existing overnight rate.

The MIBID/MIBOR rate is used as a benchmark rate for majority of deals struck for interest rate swaps, forward rate agreements, floating rate debentures and term deposits.

Following is the Chart taken from Thomson Reuters 3000Xtra displaying movement in Overnight MIBOR beginning year 2009.

 

Indian Benchmark Rate

INBMK is a benchmark rate published by Thomson Reuters. Its full form is Indian Benchmark Rate. It presents the yield on government securities for a specific tenor. It is gaining a lot of popularity these days. It refers to that page of Reuters where they quote the daily yield of GOI.

In INBMK swap, the floating rate of interest is decided as the one year GOI (Government of India Security) yield on the reset date. On Thomson Reuters page, it appears as ‘0#INBMK =’. In INBMK swap, the floating rate is reset annually just before the settlement date. Hence, the two counterparties are well aware of the cash flow that they will exchange after 12 months.

On every settlement date, the floating rate is set for the next settlement date at the Thomson Reuters one year interpolated 0#INBMK – bid yield prevailing one day prior.

This swap is undertaken by hedgers who either seek to convert their fixed rate liability to floating rate liability linked to Government of India Security or those who seek to convert floating rate liability linked to G-Sec to fixed rate liability.

Following is the screenshot taken from Thomson Reuters 3000Xtra displaying INBMK rates.

 

Following is a screenshot taken from Thomson Reuters 3000Xtra displaying details of various Government of India bonds issued at various times for various maturities.

 

Mumbai Interbank Forward Offered Rate

Mumbai Interbank Forward Offered Rate (MIFOR) is an interest rate benchmark for AAA corporate funding cost in India. It is derived from USD Libor and the USD/INR Forward Premia. Both these rates represent a highly liquid market. It uses these rates as the Indian money market is not yet fully developed.

MIFOR, unlike the popular perception, is not subject to sudden change and swing as it is derived from foreign exchange forward market. It is not that change prone as it is simply the Indian equivalent of USD Libor and the USD interest rate swaps market.

Following is a screenshot taken from Thomson Reuters 3000Xtra displaying MIFOR fixing and swap rates with MIFOR as floating rate benchmark.

 

 

MIFOR swaps in India can only be undertaken by interbank counterparties. MIFOR swap curve displayed in Screenshot 9.15 is used to arrive at currency swap pricing for a corporate who either seeks to convert his FX liability including principal and interest into INR or vice versa and also to arrive at more than one year USD/INR forward premium.

Forward Rate Agreement

Forward rate agreement (FRA) is a financial contract between the two parties which want to hedge themselves against any future interest rate exposure, i.e., any increase or decline in the future interest rate. It is an OTC contract which determines the interest rate to be paid or received on a future start date. It is based on a ‘notional principal’.

On specified date or effective date, only the difference between the contracted interest rate and the market rate is exchanged. No exchange of funds takes place.

Like every other contract, there is a buyer and a seller in this case as well. FRA is used for hedging against the rising interest rate by the buyer and against the falling interest rate by the seller. In the contract, the rates to be used along with termination date and notional value are mentioned.

Terminology

• 3 × 6—An agreement to exchange interest payments for a three-month period, starting three months from now
• Buy FRA—pay fixed and receive benchmark rate
• Sell FRA—receive fixed and pay benchmark rate
• Settlement takes place at the start date of the FRA

Quoting: A typical FRA quote would look like 6 × 9 months: 7.20–7.30 per cent p.a. This has to be interpreted as follows:

• The bank will accept a three months deposit starting six months from now, maturing nine months from now, at an interest rate of 7.20 per cent (bid rate).
• The bank will lend for a period of three months starting six months from now, maturing nine months from now, at an interest rate of 7.30 per cent (offer rate).

A simple example to explain the concept is as follows:

• A corporate has an expected requirement for funds after three months but is concerned that interest rates will head higher from current levels.
• The corporate can enter into an FRA to hedge or fix his borrowing cost today, for the loan to be raised after three months.
• The rate agreed in the FRA has to be compared to the benchmark rate to determine the settlement.

Therefore, the corporate buys a 3 × 6 FRA from a bank at say 6.75 per cent with the benchmark rate being the three months CP issuance rate.

Terms of the FRA deal: Bank and corporate enter into a 3 × 6 FRA. Corporate pays FRA rate of 6.75 per cent. Bank pays benchmark rate based on three months CP issuance rate of the above corporate three months later.

■ Notional principal	INR 10 crores
■ FRA trade date	27 July 2010
■ FRA start/settlement date	27 October 2010
■ FRA maturity date	27 January 2011

Theoretically, the fixed rate of 6.75 per cent is obtained by pricing of the forward rate from the current rates.

Cash flows for the FRA deal

• Assume, three months CP rate for the corporate on fixing date = 7 per cent
• Cash flow calculations

  Interest payable by corporate = 10 Cr × 10.75 per cent × 90/365 = INR 16,643,836

  Interest payable by bank = 10 Cr × 7 per cent × 90/365 = INR 17,260,274

  Net payable by bank on maturity date = INR 616,438

  Discounted amounted payable = INR 61,644/(1 + 7 per cent × 92/365) = INR 605,750

Amount payable by the Bank on settlement date = INR 605,750

Uses of FRAs

• For corporate seeking to hedge its future loan exposures against rising rates.
• For interbank participants, for trading purposes
  • Buy FRA if the view is that the realized forward rate will be higher than the agreed fixed rate.
  • Sell FRA if the view is that the realized forward rate will be lower than the agreed fixed rate.

Example

Assume Company A enters into FRA with Company B in which Company A will receive a fixed rate of 10 per cent for one year on a principal of INR 1 Lakh in three years. In return, Company B will receive the one year Libor rate, determined in three years’ time, on the principal amount. The agreement will be settled in cash in three years.

If, after three years, the Libor is at 10.5 per cent, the settlement to the agreement will require that Company A pays to Company B. This is because the Libor is higher than the fixed rate. Mathematically, INR 1 Lakh at 10 per cent generates INR 10,000 of interest for Company A while INR 1 Lakh at 10.5 per cent generates INR 10,500 in interest for Company B. Ignoring the present values, the net difference between the two amounts is INR 500 which is paid to Company B.

Mumbai Interbank Bid Rate

MIBID, short form of Mumbai Interbank Bid Rate is that interest rate which a bank is willing to pay to another bank on deposit of funds. This rate is generally considered by the banks participating in the Indian interbank market for attracting more deposits of funds. It is calculated everyday by National Stock Exchange of India (NSEIL). It is the weighted average of interest rates of a group of banks, on fund deposited by first class customers.

MIBID is deliberately kept lower than MIBOR, i.e., Mumbai interbank offer rate. MIBOR is the rate which is applicable for providing fund to other participating banks. This difference provides the banks a profit from the spread of interest earned and paid.

Overnight Indexed Swap

Overnight Indexed Swap (OIS) is an interest rate swap which consists of both the fixed and floating interest rates for an agreed maturity period. Its floating leg is tied to a published index of a daily overnight rate reference. The maturity period could be anything ranging from one week to five years and sometimes more than that as well.

The two parties, with each other’s consent and on the agreed notional amount, agree to exchange at maturity the difference between interest accrued at the agreed fixed rate and interest accrued through geometric averaging of the floating index rate.

Since its introduction in the 1990s, OIS has become a widely-used, highly credit-efficient and liquid derivative in all major currencies. It is used to hedge against, or speculate on, moves in overnight interest rates (both ‘micro’ moves—daily volatility—and, more importantly, ‘macro’ moves driven by central banks, which influence overnight rates directly.

If cash can be borrowed by the swap receiver for the same maturity as the swap and at the same rate and lent back every day in the market at the index rate, the cash payoff at maturity will exactly match the swap payout i.e. the OIS acts as a perfect hedge for a cash instrument.

Since indices are generally constructed on the basis of the average of actual transactions, the index is generally achievable by borrowers and lenders. Economically, receiving the fixed rate in an OIS is like lending cash. Paying the fixed rate in an OIS is like borrowing cash.

Following is screenshot taken from Thomson Reuters 3000Xtra displaying OIS rates for various tenors with daily compounded MIBOR as floating rate benchmark.

 

London Interbank Offer Rate and Interest Rate Swap

London Interbank Offer Rate or Libor is the rate at which the banks can borrow from other banks or lend to the banks in need of funds, in marketable size, in the London Interbank Market. It is fixed by the British Bankers’ Association on a daily basis.

It is calculated by a filtered average of the world’s most creditworthy banks’ interbank deposit rates for larger loans with maturities between overnight and one full year. Libor is considered as the world’s most widely used benchmark for short-term interest rates.

It is one of the most significant rates because it is the rate at which the most preferred borrowers of the world borrow funds. Countries which rely on the Libor for a reference rate include the United States, Canada, Switzerland and the United Kingdom.

Following is a screenshot taken from Thomson Reuters 3000Xtra displaying Libor rates in various currencies published by the British Bankers’ Association.

 

Following is a screenshot taken from Thomson Reuters 3000Xtra displaying swap rates in various currencies against their floating rate benchmarks.

Interest rate swaps are undertaken by market participants to convert fixed rate exposure to floating rate exposure or vice versa for Asset–Liability Management or for trading based on their view.

 

GLOBAL MONEY MARKET RISK INDICATORS AND THEIR IMPACT ON EXCHANGE RATE

The below mentioned three key indicators of money market since the onset of US and European crisis have become an important determinant of foreign exchange rates, their move and volatility.

TED Spread

This refers to the difference between T-Bills (Short Tenor US Government issued Debt) and the Euro Dollar Future (ED) contracts traded on Chicago Mercantile Exchange (CME). CME ED prices are determined by the market’s forecast of the three months USD LIBOR interest rate expected to prevail on the settlement date of contract. Higher yields implied by ED contracts indicate tightening liquidity, that is, lenders in the interbank market are asking for higher yields to lend.

TED spread is normally calculated in basis points, for example, if the T-bill rate is 2 per cent and ED trades at 2.40 per cent, the TED spread is 40 bps. On an average, TED spread has been ranging between 10–50 bps. However, during subprime crisis due to tightening liquidity this spread rose to a level of 150–200 bps but on few days it reached as high as 457 bps.

Currency Market Impact: As one can see from the given graph, with the rise in TED Spreads, USD becomes weaker against EUR (i.e. EUR / USD goes up) and vice versa.

 

LIBOR-OIS Spread

This refers to the difference between LIBOR and OIS rates. The LIBOR is the interest rate at which banks borrow unsecured funds from other banks in the London wholesale money market. OIS refers to swap through a bank can convert fixed rate liability to a floating rate liability or vice versa. Similar to TED spreads this spread is also measured in bps.

A bank which wants to secure funding for three months at a particular rate has two options:

1. Option 1: Borrow everyday in interbank market at overnight rate and enter into a floating to fixed rate swap (OIS), in order to freeze the cost of borrowing for three months.
2. Option 2: Borrow for three months in LIBOR market by paying three month LIBOR rates.

In normal market situations, banks normally prefer to use Option 1. However, in times of financial crisis when liquidity considerations are more important, banks use Option 2. This leads to Option 2 becoming more expensive than Option 1, considering in Option 2 the lending bank has to part with liquidity for three months tenor. In Option 1, there is no parting with liquidity and hence this is more stable in that sense.

Before the onset of the turmoil in the credit markets in August 2007, the LIBOR-OIS spread was around 10 basis points. However, in just over a month, the spread rose to 85 basis points on 14 September 2007, when the Bank of England announced emergency funding to rescue the troubled Northern Rock, one of the UK’s largest mortgage lenders. The spread reached its all-time high at 108 basis points on 6 December 2007. Around the same time, large investment banks such as UBS and Lehman Brothers announced huge write-downs. On 17 March2008, the collapse of Bear Stearns led to an 83-basispoint spread, a 19-basis-point increase from the previous trading day. In another illiquidity wave following the failure of Lehman Brothers, the spread was 365 basis points (as of 10 October 2008). In short, the LIBOR-OIS spread has been the summary indicator showing the ‘illiquidity waves’ that severely impaired money markets in 2007 and 2008.

The same is true for European market as well and the same can be seen from the given graph where in fourth quarter of December 2011, the spreads reached as high as 92 bps and Post LTRO operations, the same have eased to 30 bps.

 

Currency Market Impact: As one can see from the given graph, with the rise in LIBOR-OIS basis, USD becomes weaker against EUR (i.e. EUR / USD goes up ) and vice versa.

Basis Swap

A basis swap is an interest rate swap which involves the exchange of two floating rate financial instruments of two different currencies. In a EUR / USD basis swap, Euribor is exchanged against LIBOR. Contrary to swaps in the same currencies, basis swap imply an exchange of principal. There is therefore a credit risk embedded in any basis swap. The conventional pricing is US LIBOR flat plus a spread. Similar to TED Spread, this is also measured in bps.

With the onset of European crisis recently, it has become costly for someone in Europe with EUR currency funds to swap the same into USD. The same can be seen from the given graph which shows that the cost of raising money in USD for someone in Eurozone for three month went to as high as 170 bps over US LIBOR. Post LTRO operations of European Central Bank(ECB) through which ECB supplied massive funds to market, the cost of the same has come down to 55 bps.

Currency Market Impact: As one can see from the given graph, with EUR-USD basis swap turning further negative, EUR becomes weaker against USD (i.e. EUR / USD goes down ) and vice versa.

 

TEST YOUR UNDERSTANDING

1. What is call money market?
2. What is ICD?
3. Briefly explain the concept of ‘MIBOR’ and ‘MIFOR’.
4. Explain ‘INBMK’ and ‘MIBID’.
5. Write short notes on:
   1. LIBOR
   2. FRA
   3. OIS
6. Briefly explain the utility and purpose of FRA to an investor.