Podcast
Questions and Answers
What is a characteristic of securities in money markets?
What is a characteristic of securities in money markets?
Why do investors use money markets?
Why do investors use money markets?
What advantage do money markets have over banks?
What advantage do money markets have over banks?
What is the purpose of money markets for corporations and the US?
What is the purpose of money markets for corporations and the US?
Signup and view all the answers
What is the main purpose of money markets?
What is the main purpose of money markets?
Signup and view all the answers
Why are negotiable certificates of deposits usually settled?
Why are negotiable certificates of deposits usually settled?
Signup and view all the answers
What makes banker's acceptances ideal for foreign transactions?
What makes banker's acceptances ideal for foreign transactions?
Signup and view all the answers
What is the annualized investment rate if a T-bill is purchased for $9360 maturing in 270 days for $10000?
What is the annualized investment rate if a T-bill is purchased for $9360 maturing in 270 days for $10000?
Signup and view all the answers
In a T-bill auction with a par value of 2.1 billion for 91-day T-bills, if only competitive bids are accepted, who will get the bills?
In a T-bill auction with a par value of 2.1 billion for 91-day T-bills, if only competitive bids are accepted, who will get the bills?
Signup and view all the answers
What is the London Interbank Offered Rate (LIBOR) used for?
What is the London Interbank Offered Rate (LIBOR) used for?
Signup and view all the answers
What is the main characteristic of Eurodollars?
What is the main characteristic of Eurodollars?
Signup and view all the answers
What is the primary function of Federal Funds?
What is the primary function of Federal Funds?
Signup and view all the answers
What is the main purpose of Repurchase Agreements?
What is the main purpose of Repurchase Agreements?
Signup and view all the answers
What is the main characteristic of Commercial Paper?
What is the main characteristic of Commercial Paper?
Signup and view all the answers
What is the main characteristic of Treasury Bills?
What is the main characteristic of Treasury Bills?
Signup and view all the answers
What is Libor?
What is Libor?
Signup and view all the answers
What is the significance of Asset-backed commercial paper in the 2008 financial crisis?
What is the significance of Asset-backed commercial paper in the 2008 financial crisis?
Signup and view all the answers
What is securitization?
What is securitization?
Signup and view all the answers
What is Commercial Mortgage Backed Securities (CMBS)?
What is Commercial Mortgage Backed Securities (CMBS)?
Signup and view all the answers
What is maturity transformation?
What is maturity transformation?
Signup and view all the answers
Why did diversification not work well after 2008?
Why did diversification not work well after 2008?
Signup and view all the answers
How did banks make money in the 2008 crisis?
How did banks make money in the 2008 crisis?
Signup and view all the answers
What caused the lack of trust in Money Market Mutual Funds (MMMFs) in 2008?
What caused the lack of trust in Money Market Mutual Funds (MMMFs) in 2008?
Signup and view all the answers
What are Banker's Acceptances important for?
What are Banker's Acceptances important for?
Signup and view all the answers
Which of the following is a money market instrument with maturities ranging from 28 days to 12 months and are commonly discounted?
Which of the following is a money market instrument with maturities ranging from 28 days to 12 months and are commonly discounted?
Signup and view all the answers
What is the primary method through which the Federal Reserve controls interest rates?
What is the primary method through which the Federal Reserve controls interest rates?
Signup and view all the answers
Which market involves short-term funds transferred between financial institutions, usually for one day, and are used by banks to meet reserve requirements?
Which market involves short-term funds transferred between financial institutions, usually for one day, and are used by banks to meet reserve requirements?
Signup and view all the answers
What market did the collapse of Lehman Brothers involve due to high repo haircuts?
What market did the collapse of Lehman Brothers involve due to high repo haircuts?
Signup and view all the answers
Which of the following was involved in the LIBOR scandal, impacting the cost of mortgages and loans?
Which of the following was involved in the LIBOR scandal, impacting the cost of mortgages and loans?
Signup and view all the answers
What type of securities are bank-issued, document a deposit, and specify the interest rate and maturity date, with maturities typically between 1 and 4 months?
What type of securities are bank-issued, document a deposit, and specify the interest rate and maturity date, with maturities typically between 1 and 4 months?
Signup and view all the answers
What is the typical range of maturities for negotiable certificates of deposit?
What is the typical range of maturities for negotiable certificates of deposit?
Signup and view all the answers
What is the primary function of the Federal Reserve's expansionary monetary policy?
What is the primary function of the Federal Reserve's expansionary monetary policy?
Signup and view all the answers
Which entity conducts auctions for Treasury bills every Thursday, with both competitive and non-competitive bids influencing the price paid?
Which entity conducts auctions for Treasury bills every Thursday, with both competitive and non-competitive bids influencing the price paid?
Signup and view all the answers
What is the typical range of maturities for Treasury bills?
What is the typical range of maturities for Treasury bills?
Signup and view all the answers
What market does the Federal Reserve use to conduct monetary policy by buying/selling Treasuries?
What market does the Federal Reserve use to conduct monetary policy by buying/selling Treasuries?
Signup and view all the answers
What entity was involved in the LIBOR scandal and required government intervention to save banks?
What entity was involved in the LIBOR scandal and required government intervention to save banks?
Signup and view all the answers
Study Notes
Money Market Instruments and Functions
- Money market instruments include stocks, bonds, cash, and short-term instruments like Treasury bills, federal funds, commercial paper, LIBOR, Eurodollar, and repurchase agreements
- Key participants in money markets include the US Treasury Department, the Federal Reserve System, commercial banks, businesses, investment companies, finance companies, and insurance companies
- The Federal Reserve controls interest rates through open-market operations, with the current target interest rate around 5.25-5.5%
- Expansionary monetary policy involves the Fed buying government securities in the bond/money market, increasing the money supply and lowering interest rates
- Treasury bills have maturities ranging from 28 days to 12 months and are commonly discounted, providing a return through capital appreciation
- Treasury bills are auctioned to dealers every Thursday, with both competitive and non-competitive bids influencing the price paid, and the interest rate on T-bills is typically close to the inflation rate
- Federal funds are short-term funds transferred between financial institutions, usually for one day, and are used by banks to meet reserve requirements
- Repurchase agreements are similar to the federal funds market but involve nonbanks, with the Fed using this market to conduct monetary policy by buying/selling Treasuries
- The collapse of Lehman Brothers was influenced by high repo haircuts, which resulted in the firm not being able to get enough cash
- Negotiable certificates of deposit are bank-issued securities that document a deposit and specify the interest rate and maturity date, with maturities typically between 1 and 4 months
- The LIBOR scandal involved banks estimating how much interest they would have to pay to borrow cash, impacting the cost of mortgages and loans
- The LIBOR scandal led to government intervention to save banks and revealed the impact of borrowing costs on the financial sector
Studying That Suits You
Use AI to generate personalized quizzes and flashcards to suit your learning preferences.
Description
Test your knowledge of money market instruments and their functions with this quiz. Learn about Treasury bills, federal funds, repurchase agreements, and more. Explore the roles of key participants like the Federal Reserve and commercial banks, and understand how interest rates are controlled through open-market operations.
