Other Debt Securities; Money Market

Question 1

Money Market Debt Securities mature in?

Answer 1

A Year or Less

Question 2

Characteristics of Money Market Debt Securities

Answer 2

Relatively safe - low default risk

They are LIQUID

PAY LOW INTEREST RATES

NOT INSURED BY THE FDIC (EXCEPT FOR CDs)

Question 3

Types of Money Market Debt Securities

Answer 3

BRECCFT

BANKERS ACCEPTANCES
REPURCHASE AGREEMENTS
EURODOLLAR DEPOSITS
CERTIFICATES OF DEPOSIT
COMMERCIAL PAPER
FEDERAL AGENCY NOTES
TREASURY BILLS

Question 4

BANKERS ACCEPTANCES

Answer 4

• Short term credit instruments issued by a business for the purchase or sale of goods, usually in an international market.
• Guaranteed by the bank
• A SECURED debt security
• Issue at a DISCOUNT to FV
• Traded in the SECONDARY MARKET

Question 5

REPURCHASE AGREEMENTS

Answer 5

• Short term sale of security WITH an agreement to repurchase the security back from the buyer
• Like a short term loan
• Security is the COLLATERAL
• Often done by securities dealers for SHORT TERM CASH

Question 6

EuroDollar Deposits

Answer 6

• US dollar deposit, placed with a bank outside the US
• NOT regulated by FRB
• Typically PAY HIGHER INTEREST PAYMENTS

Question 7

Certificates of Deposit (CDs)

Answer 7

• Pays more than a Savings Acct
• Deposit is an up front LUMP SUM
• Considered VERY SAFE
• BACKED BY FDIC
• LOW opportunity for GROWTH
• GUARANTEED RATE OF RETURN

Question 8

Commercial Paper

Answer 8

• UNSECURED
• ISSUED at a DISCOUNT
• TYPICALLY MATURES IN LESS THAN 90 DAYS, BUT CAN GO 270 DAYS
• CONSIDERED RELATIVELY SAFE
• BANK AND LARGE CORPORATIONS ISSUE these for SHORT TERM CASH NEEDS

Question 9

Federal Agency Notes

Answer 9

NEED TO LOOK IN BOOK!

Question 10

Treasury Bills

Answer 10

• BOUGHT at DISCOUNT
• NO COUPON PAYMENTS
• FACE AMOUNT (PAR VALUE) PAID BACK AT MATURITY
• SOLD IN INCREMENTS OF $100
• TYPICALLY MATURES IN LESS THAN 1 YEAR
• CAN SELL AT MATURITY OR BEFORE
• BUY FROM “TreasuryDirect” , BANK, or BROKER