invest chapter 3 - Chapter 3 Asset Classes and Financial...

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Chapter 3 Asset Classes and Financial Instruments. THE MONEY MARKET Treasury Bills o Issuer: Federal government o Denomination: $100, commonly $10,000 o Maturity: 4, 13, 26, or 52 weeks o Liquidity: High o Default risk: Very low o Interest type: Discount o Taxation: Federal owed; exempt from state and local Certificates of Deposit (CDs) o Issuer: Depository institutions o Denomination: Any o Maturity: Varies o Default risk: First $250,000 insured o Interest type: Add on o Taxation: Interest income fully taxable Commerical Paper (CP) o Issuer: Large generally creditworthy corporations, financial institutions o Denomination: Minimum $100,000 o Maturity: Maximum 270 days, usually 1-2 months o Liquidity: High o Default risk: Issuer specific but generally quite low o Interest type: Discount o Taxation: Interest income fully taxable o New Innovation: Asset-backed commercial paper Federal Funds o Depository institutions must maintain deposits with Federal Reserve Bank o Federal funds—trading in reserves held on deposit at Federal Reserve o Key interest rate for economy LIBOR( London Interbank Offer Rate) o
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