Chapter 8: Money Markets

Question 1

SONIA

Answer 1

The Sterling Overnight Index, published by the bank of England
* Backwards looking

Question 2

SOFR

Answer 2

• Reflects the cost of borrowing though treasury securities, released by the US Federal Reserve

Question 3

Treasury Bills

Answer 3

• The government borrowing money on the money markets short-term
• Issued with life of less than a year
• Issued at discount and redeemed at their face vale
• Minimum denomination is £25,000 nominal value

Question 4

Commercial Paper

Answer 4

• Corporate issued unsecured short dated debt
• No coupon, issued at discount and redeemed in full
• May have maturities of between 7 days and 12 months

Question 5

CDs

Answer 5

• issued by bank or building society with a UK banking license
• represent a deposit and not a loan
• pay interest
• typically issues with a life between 1 month and 1 year, but can be issued with a life of up to five years
• the only default risk taken is the risk of the bank defaulting
• freely transferred