tailieunhanh - Financial Markets and Institutions: Chapter 6

Chapter 6 Money Markets: describe the features of the most popular money market securities, explain how money markets are used by institutional investors, explain the valuation and risk of money market securities, explain how money markets have become globally integrated. | 1 1 Part 3 Debt Security Markets 2 ■ describe the features of the most popular money market securities ■ explain how money markets are used by institutional investors ■ explain the valuation and risk of money market securities ■ explain how money markets have become globally integrated 3 6 Money Markets 3 Chapter Objectives 3 Money Market Securities Money market securities are debt securities with a maturity of one year or less. Issued in the primary market through a telecommunications network by the Treasury, corporations, and financial intermediaries that wish to obtain short-term financing. Are commonly purchased by households, corporations, and governments that have funds available for a short time period. Can be sold in the secondary market and are liquid. 4 4 4 Money Market Securities The more popular money market securities are: Treasury bills (T-bills) Commercial paper Negotiable certificates of deposit Repurchase agreements Federal funds Banker’s acceptances 5 5 5 Exhibit How Money Markets Facilitate the Flow of Funds 6 6 6 Treasury Bills Issued when the . government needs to borrow funds. The Treasury issues T-bills with 4-week, 13-week, and 26-week maturities on a weekly basis. The par value (amount received by investors at maturity) of T-bills was historically a minimum of $10,000, but now it is $1,000 and multiples of $1,000. Are sold at a discount from par value, and the gain is the difference between par value and the price paid Backed by the federal government and are virtually free of credit (default) risk. Highly liquid, due to short maturity and strong secondary market. 7 7 7 Treasury Bills Investors in Treasury Bills Depository institutions retain a portion of their funds in assets that can be easily liquidated to accommodate withdrawals. Other financial institutions invest in T-bills in case cash outflows exceed cash inflows. Individuals with substantial savings invest indirectly through money market funds. Corporations invest in T-bills | 1 1 Part 3 Debt Security Markets 2 ■ describe the features of the most popular money market securities ■ explain how money markets are used by institutional investors ■ explain the valuation and risk of money market securities ■ explain how money markets have become globally integrated 3 6 Money Markets 3 Chapter Objectives 3 Money Market Securities Money market securities are debt securities with a maturity of one year or less. Issued in the primary market through a telecommunications network by the Treasury, corporations, and financial intermediaries that wish to obtain short-term financing. Are commonly purchased by households, corporations, and governments that have funds available for a short time period. Can be sold in the secondary market and are liquid. 4 4 4 Money Market Securities The more popular money market securities are: Treasury bills (T-bills) Commercial paper Negotiable certificates of deposit Repurchase agreements Federal funds Banker’s acceptances 5 5 5 Exhibit