1. Money market Flashcards
1
Q
What is Cash equivalents and Marketable securities
A
All highly liquid investments with maturities of three months or less at the date of purchase.
2
Q
How market money could be defined?
A
- Sold in large denominations 1Mln or more
- Low default risk
- Mature in 1 year or less (usually 120 days)
- No particular location for trade (electronically)
3
Q
What are cost advantages of Money market?
A
*Reserve requirements create additional expense for banks
*Regulations on the level of interest rates could lead depositors to a significant growth
*When interest rates rises, depositors move money from banks to money markets
4
Q
What is the purpose of money market?
A
- Provides a place for warehousing surplus for a short period of time
- Borrowers from money market provide low-cost source of temporary funds
- Corporations and governments use these markets because the timing of cash inflows and outflows are not well synchronized.
- Money markets provide a way to solve these cash-timing problems
5
Q
Who are participants of money market?
A
- US Treasure department: Sells securities to fund national debt. Is largest borrower. Only take supply side
- Federal Reserve System: Sells treasury bonds in order to control interest rate
- Commercial Banks: Buys treasury securities and sell certificates of deposit
- Businesses: sells and buys securities in order to profit
- Investment companies: trade on behalf of commercial accounts
- Finance companies: raise money on the money market and then lend money to customers to buy durable goods
- Insurance companies: maintain liquidity needed to meet unexpected demand
- Pension funds: investment opportunity for low risk
- Individuals: investment option
- Money market mutual funds: allow small investors to participate in large-denomination securities
6
Q
What are Money market instruments?
A
Treasury bills
Federal funds
Repurchase agreements.
Negotiable Certificates of Deposit.
Commercial paper
Banker’s acceptance.
Eurodollars.
