Cash & Fixed Interest Flashcards
Treasury Bills
Issued by government to
finance daily cash flow
Routinely issued at weekly
auctions
1, 3, and 6-month maturities
(also 12 months but so far, no
12-month bill tenders have
been held)
No interest paid - issued below
par and repaid at par on
maturity
Government backed and highly
liquid
Certificates of Deposit
Receipts from banks for
deposits placed with them
Fixed rates of interest and fixed
term (can trade prior to
maturity)
Interest paid at maturity
Interest rate depends on
market rates and bank’s credit
rating
Commercial Bills
Short-term negotiable debt
instruments issued by
companies
Issued at discount to maturity
value
Typical maturities of between
30 and 90 days
Unsecured
Reduced liquidity
Short term money market funds have a maximum weighted average maturity of?
60 days and a weighted average life of 120 days
Standard money market funds have a maximum weighted average maturity of ?
6 months and a weighted average life of 12 months
Cum dividend
Purchases receives full 6 months interest ( but pays accrued interest up to settlement date to seller )
Ex-dividend
Where seller receives 6 months interest (but price adjusted to reflect this)
Dirty price is?
Clean price +/- interest adjustment
Interest yield
Coupon/clean price x 100
Redemption yield
Interest yield +/- gain or loss at maturity / number of years to maturity
——————————————
Clean price x 100
Normal yield curve
Rising positive curve, higher
yields for longer terms
Flat yield curve
Income similar for long and
short term
If economic factors are stable
and no radical changes to
expected inflation or interest
rates
Inverted/Reverse Yield Curve
Yields on longer-term bonds Caused by supply and demand or when investors expect short- term falls to interest rates and lower long-term rates
Secured bonds
Charge on certain assets of the company
Unsecured bonds
Higher yield due to higher risk
Holders rank alongside other creditors in liquidation