Financial Markets and Institutions Test 3 Review

Financial Markets and Institutions Test 3 Review - • Bid...

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Financial Markets and Institutions Test 3 Review Fed Funds Most liquid of all financial assets. The interest rate for repos is lower than the fed funds rate, since repos are backed by securities (usually T-bills, T-bonds, or federal agency debt). The money market is comprised of dealers who issue and make the market in securities. Banker’s acceptances are bank liabilities. A repurchase agreement is a secured obligation. The money market is a market where liquidity is bought and sold. Brokers bring buyers and sellers together. T-Bill is the money market instrument with the lowest yield to the investor. Holding Period Return= (SP-PP/PP) x (365/n) Discount Rate/yield= yd= (Par-Price/Par) x (360/n) The max non-competitive bid is $1 million.
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Unformatted text preview: • Bid Price= Par Value- Bid yield Discount in Dollars • Bid Yield Discount in Dollars= Par Value x Discount Rate (as Decimal) x Remaining Days to Maturity. • Dealers Spread= Dealer’s Ask Price- Dealer’s Bid Price • T-bills are issued by the government to cover deficits and to refinance maturing government debt. • Unlike T-Bills; T-Notes and T-Bonds are coupon instruments. • Credit Enhancements lower costs to issuers and default risk to investors. • Capital Markets can be either debt or equity; all money markets instruments are debt securities. • Tax exempt bonds the before tax return equals the after tax return. • When Interest rates are low people refinance their mortgages....
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Financial Markets and Institutions Test 3 Review - • Bid...

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