Money Market Index
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The money market index is basically an indicator of the prevailing money market which gives the investor the idea of where to invest and how much to invest.
In the following section we may discuss some of the important money market indices.
Smart Money Market Index
The Smart money market index is basically a composite index . This money market index is based on the intra day price pattern observed in the Dow Jones Industrial average. The Smart money market index can forecast important stock market turning points.
The Smart Money Market Index assumes that the investors who are worked up and news driven tend to trade during the initial half hour. The professional investors have an inclination of trading in the second half after they have calculated in detail the day’s action in the money market.
The Smart money market index is calculated by deducting the change in the Dow Jones Industrial Average during the first half hour of trading from the change recorded in the second half. Then this value is cumulated. This calculation may be explained with the help of an example. If the Dow Jones Industrial Average rose by 100 points in the first half hour and fell by 50 points in the second half, then the total change would be -150 points that would be deducted from the cumulative index value.
The Hertler market Signal Inc. tracks the divergences between the emotional component and the smart money component of the Smart Money Market Index.
Salomon Smith Barney’s World Money Market Index
The Salomon Smith Barney’s World Money Market Index is basically calculated on an equally weighted basis. This is obtained by evaluating the different money market instruments in Canadian Dollars, French Francs, German Francs, German Deutsche Marks, Japanese Yen, Netherlands Guilder, Swiss Francs, UK Pounds Sterling, US Dollars. The construction of the Salomon Smith Barney’s World Money Market Index is constructed on the following assumptions. The index only invests in short term securities that mature in a month. All the deposits and the securities in which the investments have been made are held till they are mature. As the month begins almost 1/3 rd of the index matures and the rest is passed onto the next three months.
Banker’s Acceptance Rate
The Banker’s Acceptance is a short term credit investment. It is guaranteed by a bank to make payments. The Banker’s Acceptance are traded in the Secondary market. The banker’s acceptance is mostly used to finance exports, imports and other transactions in goods. The banker’s acceptance need not be held till the maturity date but the holder has the option to sell it off in the secondary market whenever he finds it suitable. The rate at which the trading of banker’s acceptance occurs is the banker’s acceptance rate. The banker’s acceptance rate is used as a money market index .
London Inter Bank Offered Rate
The London Inter Bank Offered Rate is serves as a good money market index.
The interest rate that is charged by banks for borrowing funds to other banks in the Interbank Market is the London Inter Bank Offered Rate, commonly known as the LIBOR. The LIBOR is set on a daily basis by the British Banker’s Association. The LIBOR is the index used for short term interest rates. US, Canada, Switzerland rely on LIBOR for a reference rate.
For more details on money market index the websites to be viewed are russel.com, hertlermarketsignal.com etc.
