Money Market Flashcards
Trading in very short-term debt investments and seen as cash equivalents
Money Market
Short term financial instrument that trades in money market
paper
Banks lending and borrowing from each other
Interbank Lending
Participants in the money market
- Trading Companies
- Retail and Institutional money market funds
- Banks
- Central banks
- Cash Management Programs
- Merchant Banks
Functions of the money market
- Financing Trade
- Profitable investments
- Self- sufficiency of commercial banks
- Help to central bank
Secure short term loans to meet working capital requirements
Financing Trade
Enabled commercial banks to use their excess reserves in profitable investments. Earn profits without sacrificing liquidity
Profitable Investments
Meet requirements by recalling their old short-run loans
Self-sufficiency of commercial banks
Secure quick and widespread influence on the sub-market, facilitating effective policy implementation
Help to central bank
Types of Money Market Instruments
- Money Market Funds
- Money Market Accounts
- Certificate of Deposit
- Commercial Paper
- Banker’s Acceptance
- Repos
Mutual Funds offered by brokerages, investment companies financial services firms
Money Market Funds
Percentage fee charged on the fund for management expenses
Expense ratio
PDIC Insured, limited rights to withdraw money, interest are calculated daily and credited monthly
Money Market Accounts
Pros of Money Market
Extremely low risk
Maybe insured by PDIC
Highly liquid
Higher returns than most bank accounts
Cons of Money Market
Low returns that may not keep pace with inflation
Not all money market securities are insured
May have a high minimum investments/ withdrawal restrictions
