CH05-Money Markets Flashcards
Which Money Market instruments are issued at a discount?
CP
ABCP
Gov’t Paper
Which Money Market instruments are interest-bearing?
Bank Obligations
Floating Rate Notes (FRNs)
Who issues Commercial Paper?
Companies and Financial Institutions
What is standard maturity of CP?
overnight to 270 days
average=30 days
most matures in under 45 days
Is CP secured or unsecured?
CP=unsecured (Commercial Paper)
Do you get a higher return on a CP or an ABCP?
ABCP has a higher return b/c it’s more complex
Is ABCP secured or unsecured?
ABCP=secured (Asset Backed Commercial Paper)
What is the maturity of a Bank Obligation?
1 day - over 1 year
What is is called when the US Treasury issues gov’t paper for less than 1 year?
T-bills
What is is called when the US Treasury issues gov’t paper for more than 1 year?
Treasury Notes
Which types of Money Market instruments are secured?
ABCP-Asset backed Commercial Paper
REPOS-Repurchase Agreements
sometimes Floating Rate Notes are secured
Define REPOS
REPOS=Repurchase Agreement
Owner sells security to investor and agrees to repurchase it at a later date for a slightly higher price
Define Bilateral Repo
collateral and funds exchanged directly between the two parties
Define Tr-party Repo
collateral is held by and funds are exchanged through a broker-dealer. Considered safest method for REPOS
Define MMFs
Money Market Funds are commingled pools of money market securities. Established and managed by FIs
MMF portfolio rules
WAM=weighted average maturity
WAL=weighted average life
CBES
Commerical Book-Entry System = a delivery system that provides simultaneous transfer of securities against settlement of funds. Security owners receive interest and redemption payments wired directly
Which Money Market instruments have Variable interest rates (not fixed)?
FRNs and REPOS
Floating-rate notes and Repurchase agreements
Which money market instrument is only issued by banks?
bank obligations
Which money market instrument is only issued by municipalities?
Gov’t paper
maximum maturity for U.S. publicly traded commercial paper (CP)
270 days
Why do most investors ensure they invest in highly rated individual issues of commercial paper (CP) and set strict counterparty limits?
CP cannot be secured against any particular asset.
can CP be secured against a particular asset?
No, this is a disadvantage
T / F
Short duration mutual funds invest in securities with longer maturities than money market funds.
True
In contrast with money market funds (MMFs), short-duration mutual funds
have a higher risk of price volatility.
Do Short-duration mutual funds typically have a fixed unit currency value, i.e., a net asset value (NAV)?
No, short duration mutual funds do NOT typically have a fixed unit currency value
What is usually being sold and repurchased in a repurchase agreement (repo)?
Government debt, however, repos can be based on any security.
Define Eurodollars (Eurodollar Deposits)
Dollar-denominated deposits held in FIs outside the US.
Eurodollars may be issued as negotiable Eurodollar CDs or as Non-negotiable Eurodollar time deposits. Both of these are interest-bearing.
Do Gov’t paper, CP, and BAs bear interest?
No: GP, CP, BA do not pay interest.
GP, CP, BA are discounted instruments; they are issued below par value and pay par value at maturity
The Fed implements US monetary policy through ____ and how?
FOMC (Federal Open Market Committee). The FOMC implements monetary policy through the purchase and sale of Treasury securities in the secondary markets.
____ is fixed rate and unsecured, issued by governments or municipalities and not by a bank.
Government Paper
__________ can be unsecured or secured and are issued by financial institutions, and carry a variable rate of return
FRNs
_____ are issued by financial institutions, secured and carry a negotiable interest rate.
REPOs
which ST instruments have price risk?
CP, ABCP AND GOV’T PAPER
which ST instrument doesn’t have liquidity risk?
CP
