| 1.
| Treasury Bills
| a.
| market in which securities can be bought and sold quickly and with low transaction costs.
|
| 2.
| Federal funds
| b.
| a form of short-term borrowing for dealers in government securities. The dealer sells the government securities to investors, usually on an overnight basis, and buys them back the following day
|
| 3.
| A liquid market
| c.
| market with many different buyers and sellers
|
| 4.
| Repurchase agreements (repos)
| d.
| a time deposit, a financial product commonly offered to consumers in the United States by banks, thrift institutions, and credit unions. It is similar to savings accounts in that they are insured and thus virtually risk free; they are "money in the bank"
|
| 5.
| A deep market
| e.
| a short-term debt instrument issued by a firm that is guaranteed by a commercial bank.
|
| 6.
| A negotiable certificate of deposit
| f.
| these non-interest bearing deposits are lent out at the Fed funds rate to other banks unable to meet overnight reserve requirements.
|
| 7.
| Demand deposit
| g.
| an unsecured, short-term debt instrument issued by a corporation, typically for the financing of accounts receivable, inventories and meeting short-term liabilities.
|
| 8.
| A banker's acceptance
| h.
| a bank deposit that can be withdrawn without advance notice
|
| 9.
| Commercial paper securities
| i.
| a United States dollar held as Eurocurrency
|
| 10.
| Eurodollars
| j.
| a short-term debt obligation backed by the U.S. government with a maturity of less than one year
|
| 11.
| A bearer
| k.
| the price paid for borrowing money. It is expressed as a percentage rate over a period of time and reflects the rate of exchange of present consumption for future consumption
|
| 12.
| Reserve requirement
| l.
| the amount borrowed or the amount still owed on a loan, separate from interest
|
| 13.
| Principal
| m.
| the owner of a security or other instrument, one who holds a security with no ownership information, automatically making the him the presumed owner
|
| 14.
| Interest
| n.
| a central bank requirement that stipulates the minimum amount of reserves each bank must hold as a proportion of customer deposits and notes.
|
1. Which of the money market securities is the most liquid and considered the most risk-free? Why?
2. Who issues federal funds, and what is the usual purpose of these funds?
3. Does the Federal Reserve directly set the federal funds interest rate?
4. What is a repo? What is it main use?
5. What is the difference between a repo and federal funds?
6. Why is a CD opposed to a demand deposit?
9. Who issues commercial paper and for what purpose?
10. Why are banker's acceptances so popular for international transactions?
11. What are the main advantages of the Eurodollar market?
