Chapter 6- 1Q Types And Characteristic Of Cash And Cash Equivalants

Question 1

Money Market

Answer 1

Market for short term loan able funds

Buyer is the lender, seller is the borrower

Maturity less than a year

Usually offered as discount to par

Treasury securities are the most actively traded, usually lowest yield

Question 2

Negotiable CDs

Answer 2

Only money market instrument that pays out interest

Must have a face of 100,000 at least to be a negotiable CD

Loaning to the bank

FDIC Insurance up to 250,000

No prepayment penalty for banks

Question 3

Commercial paper

Answer 3

Short term unsecured debt used to fund working capital

Exempt from registration as long as under 9 months and for working capital not a fixed asset

Question 4

London Interbank Offered Rate

Answer 4

Survey of banks conducted each day

Ask for rates on overnight to 1 year (15 different periods)

Average and publish for each currency

MOST WIDELY USED BENCHMARK FOR SHORT TERM INTEREST RATES

Question 5

Insured Deposits by the FDIC (up to 250,000)

Answer 5

1.Demand Deposits (checking account, savings account, money market accounts)

Safe but low returns

2.Non-Negotiable CDs between you and a bank

Face of as little as $500 and 3 month to 5 year maturities

No interest rate risk