Money market, money market instruments
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The money market is a financial market segment characterized by high liquidity and instruments with maturities less than one year, serving the short-term funding needs of various entities. Key instruments include treasury bills, certificates of deposits, commercial papers, repurchase agreements, and bankers' acceptances, each with specific features and maturity periods. These instruments facilitate borrowing and lending, often with low transaction costs and minimal risk.
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Money market, money market instruments
- 1. Money market
- 2. Definition It is a segment of a financial market. It is financial institute with high liquidity and very short term maturity. The maturity period is less than the one year (from day 1 to year 1). Landing and borrowing of a funds varies from over night to a year. It full filing the short term requirements of banks, companies, government agencies, financial institutions and so on.
- 3. Money market instruments Treasury bills Certificate of deposits Commercial papers Repurchase agreement Bankers' acceptance
- 4. Treasury bills It is issued by Central banks on the behalf of government to over come liquidity shortfall. It is tool of monetary policy. These are short term, highly liquidated bills. Sell at less than its face value.
- 5. Certificate of deposits These are unsecured, negotiable and short term financial instrument issued by banks and financial companies to individual and corporation. Maturity is from 15 days to a year These are highly liquidated, low transaction cost and less risky. No loss in value.
- 6. Commercial papers Issued by highly recognized corporation which has greater credit worthiness Short term, un secured instrument issued in the form of promissory notes. Maturity is from 15 days to one year. Not easily transferable therefore, unsecured. But its purchase is safe
- 7. Repurchase agreement (Repo) It is also known as repo or buybacks. Treasury securities that are purchased from a dealer with the agreement that they will be sold back at a future date for a higher price. Most liquated from all money market investment. Maturity is from 24 hours to a several months.
- 8. Banker’s acceptance A banker's acceptance is an instruments produced by a nonfinancial corporation but in the name of a bank. It is document indicating that such-and-such bank shall pay the face amount of the instrument at some future time. Bank act as a guarantors.
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