tailieunhanh - Lecture Financial institutions, markets, and money (9th Edition): Chapter 7 - Kidwell, Blackwell, Whidbee, Peterson
Chapter 7 - Money markets. The purpose of this chapter is to explain how money markets work and to describe how businesses, governmental units, and individuals use and participate in these important markets. The money markets are where depository institutions and other businesses adjust their liquidity positions by borrowing or investing for short periods of time. | Power Point Slides for: Financial Institutions, Markets, and Money, 9th Edition Authors: Kidwell, Blackwell, Whidbee & Peterson Prepared by: Babu G. Baradwaj, Towson University And Lanny R. Martindale, Texas A&M University CHAPTER 7 Money Markets Overview of the Money Market Short-term debt market - most under 120 days. A few high quality borrowers. Many diverse investors. Informal market centered in New York City. Standardized securities -- one security is a close substitute for another. Overview of the Money Market (concluded) Good marketability - secondary market. Large, wholesale open-market transactions. Many brokers and dealers are competitively involved in the money market. Payment in Federal Funds - immediately available funds. Physical possession of securities seldom made - centralized safekeeping. Money Market Securities Outstanding Economic Role of Money Market (MM) The money market is a market for liquidity Liquidity is stored in MM by investing in MM . | Power Point Slides for: Financial Institutions, Markets, and Money, 9th Edition Authors: Kidwell, Blackwell, Whidbee & Peterson Prepared by: Babu G. Baradwaj, Towson University And Lanny R. Martindale, Texas A&M University CHAPTER 7 Money Markets Overview of the Money Market Short-term debt market - most under 120 days. A few high quality borrowers. Many diverse investors. Informal market centered in New York City. Standardized securities -- one security is a close substitute for another. Overview of the Money Market (concluded) Good marketability - secondary market. Large, wholesale open-market transactions. Many brokers and dealers are competitively involved in the money market. Payment in Federal Funds - immediately available funds. Physical possession of securities seldom made - centralized safekeeping. Money Market Securities Outstanding Economic Role of Money Market (MM) The money market is a market for liquidity Liquidity is stored in MM by investing in MM securities. Liquidity is bought in MM by issuing securities (borrowing). Liquidity status of commercial banks is reflected Provides a place for Fed’s reserve transactions (open market transactions) Indicator of economic conditions Characteristics of Money Market Instruments Low default risk. Short maturity. High marketability. . Treasury Bills Characteristics Sold on discount basis. Maturities up to one year. Minimum denomination is usually $10,000, but smaller investors can invest in multiples of $1,000 through the Treasury Direct Program offered by the Fed. Lowest interest rate of all MM securities is the 3-month T-Bill How to Read T-Bill Quotes . Treasury Bills Pricing Treasury Bills Treasury bills are priced on a bank discount rate basis, a traditional yield calculation. The bank discount rate, yd , is: . Treasury Bills The Wall Journal lists T-Bill yields on a bond equivalent basis where the discounted price is the denominator and 365 days is used as the .
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