09 - Part IV Financial Markets Chapter 9 The Money Markets...

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Part IV Financial Markets
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Chapter 9 The Money Markets The Money Markets Defined Why Do We Need Money Markets? Cost Advantages The Purpose of the Money Markets Who Participates in the Money Markets? U.S. Treasury Department Federal Reserve System Commercial Banks Businesses Investment and Securities Firms Individuals Money Market Instruments T r e a s u r y B i l l s Case : Discounting the Price of Treasury Securities to Pay the Interest Mini Case: Treasury Bill Auctions Go Haywire Federal Funds Repurchase Agreements Negotiable Certificates of Deposit Commercial Paper Banker’s Acceptances Eurodollars Comparing Money Market Securities Interest Rates Liquidity How Money Market Securities are Valued Following the Financial News: Money Market Rates ± Overview and Teaching Tips This chapter explores the institutional features of the money markets. The money market is the market for debt securities issued with the original maturities of less than one year and a high degree of liquidity. They are usually sold in large denominations and have low default risk. The chapter shows why money markets are needed and their purpose to the government, firms, financial institutions, and individuals. The money market is an interim investment that provides a higher return than holding cash or money in the bank but less than what is usually expected from long term investments.
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Chapter 9 The Money Markets 47 There are several players in the money market which include the U.S. Treasury Department, the Federal Reserve, commercial banks, businesses, investment firms, and individuals. All participants work on both sides of the market except for the U.S. Treasury Department, which is always a demander and never a supplier of the money market. The participants use a variety of money market instruments to diversify their needs. This section shows that most of these securities are short term and low risk. Point out to students the international aspect of the use of Eurodollars so they get a broader view of securities around the world. The securities also have several characteristics that are similar and different. Discuss with the students the characteristics of interest rates, maturity, and liquidity.
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09 - Part IV Financial Markets Chapter 9 The Money Markets...

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