Sunday, October 11, 2009

Instruments of the money market

The key instruments of the money market include treasury bills, tax-anticipation bills, treasury notes, federal agency issues, negotiable certificates of deposit, commercial paper, banker's acceptances, money market mutual funds, and repurchase agreements. These marketable securities will be described in next topic. It is important for you to a general understanding of the key characteristics of these instruments. One characteristic common to all is liquidity. The annual rate of return, or yield, on these securities reflects directly the "tightness' or "looseness" of money. Difference in return between various instruments result from the different degrees of risk associated with the issuers. Although the list of securities given above is not all-inclusive, it does contain the key money market instruments available to the corporate purchaser. The only instrument actually issued by a nonfinancial corporate business is commercial paper.

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