©1999 Addison Wesley Longman Slide 7.1 Human and Ethical Issues 7.
Copyright © 2000 Addison Wesley Longman Slide #9-1 Chapter Nine THE MONEY MARKETS Part IV Financial...
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Transcript of Copyright © 2000 Addison Wesley Longman Slide #9-1 Chapter Nine THE MONEY MARKETS Part IV Financial...
Copyright © 2000 Addison Wesley Longman Slide #9-1
Chapter Nine
THE MONEY MARKETS
Part IV Financial Markets
Copyright © 2000 Addison Wesley Longman Slide #9-2
The Money Markets
Money market securities are usually sold in large denominations.
They have low default risk.
They mature in one year or less from their issue date.
Copyright © 2000 Addison Wesley Longman Slide #9-3
Interest Rates Available on Several Money Market Instruments
Copyright © 2000 Addison Wesley Longman Slide #9-4
Participants in Money Markets
U.S. Treasury Department
Federal Reserve System
Commercial Banks
Businesses
Investment and Securities Firms
Individuals (mostly through money market mutual funds)
Copyright © 2000 Addison Wesley Longman Slide #9-5
Money Market Instruments
Treasury Bills
Federal Funds
Repurchase Agreements
Negotiable Certificates of Deposit
Commercial Paper
Banker’s Acceptance
Eurodollars
Copyright © 2000 Addison Wesley Longman Slide #9-9
Negotiable Certificates of Deposit Comparing Interest Rates on CDs and T-bills
Copyright © 2000 Addison Wesley Longman Slide #9-10
Commercial PaperCompare Interest on Commercial Paper to Bank Prime Rate
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Advantages to Banker’s Acceptances
1. Exporter paid immediately.
2. Exporter shielded from foreign exchange risk.
3. Exporter does not have to assess the financial security of the importer.
4. Importer’s bank guarantees payment.
5. Crucial to international trade.
Copyright © 2000 Addison Wesley Longman Slide #9-12
Eurodollars
London interbank bid rate (LIBID)
The rate paid by banks buying funds
London interbank offer rate (LIBOR)The rate offered for sale of the funds
Time deposits with fixed maturities
Largest short term security in the world
Copyright © 2000 Addison Wesley Longman Slide #9-15
Money Market Mutual FundsOpen-end investment funds that invest only in
short-term securities.No fee for purchasing or redeeming shares.Minimum initial investment of $500 to $20,000.Check-writing privileges.
No fee for writing checksNo minimum check amount
Earn 0.5% to 1% higher return than interest earned on money in the bank.
Low risk of default, low rate of risk.Popular to small investors.