Finals Flashcards
(29 cards)
What is the Money Market?
It is a component of the financial market for buying and selling short-term securities (1 year or less) like treasury bills and commercial papers.
What are examples of securities traded in the money market?
Treasury bills, commercial papers, certificates of deposits.
Is the money market organized like capital markets?
No, it is less structured than capital markets.
Who uses the money market?
Companies, governments, financial institutions, and investors use the money market for short-term borrowing and investing.
Why do companies and governments use the money market?
To solve timing mismatches of cash inflows and outflows.
Purpose of Money Market
Provides warehousing of surplus funds for short periods and a low-cost source of funds.
How does a money market work?
Investors like insurance companies, governments, NBFCs, and banks invest in short-term, highly liquid assets to fund daily operations.
What are Non-Banking Financial Companies (NBFCs)?
They offer services like lending and investing but do not have a banking license.
What are risks in money market investments?
Interest rate risk, reinvestment risk, inflation risk, exchange rate risk, regulatory risk.
Functions of the Money Market
Provides liquidity, helps monetary policy, serves as a pricing benchmark, finances industry needs.
What is Call Money?
Highly liquid overnight loans mainly between banks, used for daily cash management.
What are Treasury Bills (T-bills)?
Short-term debt issued by the government at a discount and redeemed at par.
Do Treasury Bills earn interest?
They do not pay interest but are issued at a discount; profit is the difference between purchase price and face value.
What is Commercial Paper?
Unsecured, short-term debt instrument used by companies to finance working capital needs.
What is the maturity range of Commercial Paper?
Typically 1 to 270 days, with an average of 30 days.
What are Certificates of Deposit (CDs)?
Time deposits with fixed maturity issued by banks, not withdrawable before maturity.
Component of the financial market for buying and selling securities with short-term maturities.
Money Market
Example of short-term security traded in the money market.
Commercial Paper
Debt instrument used by companies to raise short-term funds.
Commercial Paper
Short-term government security issued at a discount and redeemed at face value.
Treasury Bill
Market where large volumes of very short-term debt like overnight reserves are traded.
Money Market
Time deposit issued by a bank with a fixed maturity and not withdrawable before that date.
Certificate of Deposit
Financial institutions without a banking license but offering services like lending and investing.
Non-Banking Financial Companies (NBFCs)
