Money Market Instruments

Money Market Instruments

Money Market Instruments

Treasury Bills
Treasury notes are the safest instruments since they are issued with a complete guarantee from the
US government. The United States issues them. Treasury refinances maturing Treasury bills and
funds the federal government’s deficits on a regular basis. They are available in one, three, six, or
twelve month maturities.
The difference between the discounted purchase price and the face value represents the interest
rate. Treasury notes are offered at a discount to their face value. Banks, broker-dealers, private
investors, pension funds, insurance companies, and other significant institutions are among the

Certificate of Deposit (CD)
A commercial bank issues a certificate of deposit (CD), which can be obtained through brokerage
firms. It can be issued in any denomination and has a maturity date ranging from three months to
five years.
Most CDs offer a fixed maturity date and interest rate, and they attract a penalty for withdrawing prior
to the time of maturity. Just like a bank’s checking account, a certificate of deposit is insured by the
Federal Deposit Insurance Corporation (FDIC).

Commercial Paper
Commercial paper is an unsecured loan provided by major organizations or enterprises to fund
short-term cash flow needs like inventories and payables. It is sold at a discount, with the investor
profiting from the difference between the price and the face value of the commercial paper.
Only institutions with a high credit rating can issue commercial paper, and it is therefore considered
a safe investment. Commercial paper is issued in denominations of $100,000 and above. Individual
investors can invest in the commercial paper market indirectly through money market funds.
Commercial paper comes with a maturity date between one month and nine months.

Banker’s Acceptance

A banker’s acceptance is a type of short-term debt issued by a company but backed by a bank. A
drawer creates it, giving the holder the right to the money mentioned on the face at a specific date.
Because it benefits both the drawer and the carrier, it is frequently employed in international trade.
The holder of the acceptance may decide to sell it on a secondary market, and investors can profit
from the short-term investment. The maturity date usually lies between one month and six months
from the issuing date.

Repurchase Agreements
A repurchase agreement (repo) is a short-term loan in which you sell a securities in exchange for the
right to buy it back at a better price at a later date. It is frequently used by government securities
dealers who sell Treasury bills to a lender and agree to repurchase them at a later date at a
predetermined price.
The Federal Reserve buys repurchase agreements as a way of regulating the money supply and
bank reserves. The agreements’ date of maturity ranges from overnight to 30 days or more.

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