Unit 2 - Session 6 - Cash & Cash Equivalents

Question 1

Cash Equivalents

Answer 1

Highly liquid securities with maturities of less than three months

Question 2

Money Market

Answer 2

Market for buying and selling short-term loanable funds in the for of securities or loans

Question 3

Treasury Securities

Answer 3

Advantages:

1. ) Nearly absent of credit risk
2. ) Extremely liquid in secondary markets
3. ) Interest is exempt from state income tax

Question 4

Negotiable CDs

Answer 4

Unsecured time deposits (no assets of the bank are pledged as collateral) and money is being loaned to the bank for a specified period of time. Must have a face value of $100,000, where $1MM is more common. Pay interest semi-annually. Aka “Jumbo CD”

Question 5

Commercial Paper

Answer 5

Short-term unsecured paper issued by corporations, primarily to raise working capital. Max maturity is 9 months. Generally issued at a discount

Question 6

Eurodollars & Foreign Currency Markets

Answer 6

U.S. dollars deposited in banks outside the US; remain in USD rather than the local currency

Question 7

Why would you place client funds in a money market?

Answer 7

1. ) Highly liquid
2. ) very safe
3. ) Best place for money that is needed soon
4. ) Risk: Not suitable for long term investors
5. ) Risk: principal is being reinvested often due to short maturities

Question 8

Mortgage Backed Securities

Answer 8

usually a long term security, however, when a tranche is trading in its final year it may be considered a money market instrument

Question 9

DDA

Answer 9

Demand Deposit Account