Questions and Answers
What is the money market?
The money market refers to the network of corporations, financial institutions, investors, and governments which deal with the flow of short-term capital.
What are the types of money-market instruments?
Types of money-market instruments include commercial paper, bankers' acceptances, treasury bills, government agency notes, local government notes, interbank loans, time deposits, and repos.
Which of the following is a short-term debt obligation of a private-sector firm?
Treasury bills are considered among the safest investments.
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What are time deposits also known as?
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What purpose do repos serve in the money market?
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Who are the main users of the money market?
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Study Notes
Money Market Overview
- The money market is a network involving corporations, financial institutions, investors, and governments, facilitating short-term capital transactions.
- It primarily deals with instruments that have maturities of one year or less.
Money Market Instruments
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Commercial Paper
- Short-term debt obligation from private firms or government-sponsored corporations.
- Issued by companies with strong credit ratings to assure investors of financial stability.
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Bankers’ Acceptances
- Promissory notes issued by non-financial firms to banks for short-term loans.
- Historically a primary method for firms to access short-term funding.
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Treasury Bills (T-bills)
- Government-issued securities maturing in one year or less.
- Considered the safest investment option in the currency they are issued.
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Government Agency Notes
- Issued by national government agencies and government-sponsored corporations.
- Commonly utilized by development banks, educational lending agencies, and agricultural finance institutions.
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Local Government Notes
- Issued by provincial or local governments and affiliated agencies.
- Their issuance capability differs significantly across various countries.
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Interbank Loans
- Short-term loans between banks that lack a direct affiliation.
- Often occur across international borders, aiding banks in lending to their customers.
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Time Deposits (Certificates of Deposits - CDs)
- Interest-bearing deposits in banks with a set maturity date.
- Withdrawals before the maturity date incur penalties.
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Repurchase Agreements (Repos)
- Financial agreements where securities are sold and later repurchased, enhancing market liquidity.
- Play a vital role in maintaining a constant supply of money-market instruments.
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Description
This quiz covers the fundamental concepts of money markets, including their structure, functions, and key instruments. Test your understanding of money market users and the features of money market instruments like commercial paper. Perfect for students in MGT 103.
