Science Fair Project Encyclopedia
The money market is a general term for the markets in which banks lend to and borrow from each other, trade financial instruments such as Certificates of Deposit (CDs) or enter agreements such as Repos and Reverses. The market normally trades in maturities up to one year. It provides short to medium term liquidity in the global financial system. Derivatives of the money market include forward rate agreements (FRAs) and futures.
Common Money Market Instruments
Bankers' Acceptance. A draft or bill of exchange accepted by a bank to guarantee payment of the bill.
Commercial Paper. An unsecured promissory note with a fixed maturity of one to 270 days; usually it is sold at a discount from face value.
Eurodollar Deposit. Dollar deposits in a U.S. bank branch or a foreign bank located outside the United States.
Federal Agency Short-Term Securities (in the US). Short-term securities issued by federally sponsored agencies such as the Farm Credit System , the Federal Home Loan Banks and the Federal National Mortgage Association.
Federal Funds (in the US). Interest-bearing deposits held by banks and other depository institutions at the Federal Reserve; these are immediately available funds that institutions borrow or lend, usually on an overnight basis. They are lent for the federal funds rate.
Municipal Notes. Short-term notes issued by municipalities in anticipation of tax receipts or other revenues.
Repurchase Agreements. Short-term loans—normally for less than two weeks and frequently for one day—arranged by selling securities to an investor with an agreement to repurchase them at a fixed price on a fixed date.
Treasury Bills. Short-term debt obligations of a national Treasury that are issued to mature in 3 to 12 months.
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