Money Markets Flashcards
4 types of money market instruments
- Government bills
- Certificates of Deposit
- Commercial Paper
- Money Market Funds
UK Treasury Bills issued by
DMO (Debt Management Office)
Zero Coupon instrument (no interest) -
Issued below Nominal Value , redeemed at nominal value
DMO Stands for
Debt Management Office
UK Treasury Bills issued for
1- Short term financing required
2 - Part open market operation to control inflation for short - term
Money Market Instruments
Mature within 12 months
Certificates of Deposit issued by
Banks based on deposit
Interest bearing
Certificate of Deposit explanation
Unable to withdrew funds out
Bearer Doc provided
- no name
- contains deposit amount , interest rate , name of bank
Freely transferable
Unsecured deposit
Commercial Papers issued by
Similar to T Bill but issued by a Company
Debt Security
Commercial Paper features
Short - term unsecured debt
Zero coupon
Usually high nominal value
CP programme - issues commercial papers on a rolling basis , not all at once - takes advantage when interest rates lower (opportunistic financing )
Money Market Funds
Collective investment scheme structured like OEIC
Invest in cash or near cash assets - low risk assets
Two types of Money Market Funds
1 - Constant net assets value
(income can be paid out or accumulated
2 - Accumulating net assets value
(roll up funds - income not distributed)
Objectives relating to Monet Market Funds
- preserve capital
- liquidity ; sector related returns better then cash
High entry levels with these
DMO Issues T Bills
Weekly
Money Markets Instruments are held by
Central Securities Depository
e.g. Crest
Direct Investments in Money Markets
Likely by only Institutional clients
High minimum subscription
