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Individuals also participate in the money market as

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Unformatted text preview: -term funds (invest) purchase the money market instruments. To issue or purchase a money market instrument, one party must go directly to another party or use an intermediary, such as a bank or brokerage firm, to make the transaction. The secondary (resale) market for marketable securities is no different from the primary (initial issue) market with respect to the basic transactions that are made. Individuals also participate in the money market as purchasers and sellers of money market instruments. Although individuals do not issue marketable securities, they may sell them in the money market to liquidate them prior to maturity. The Eurocurrency Market Eurocurrency market International equivalent of the domestic money market. London Interbank Offered Rate (LIBOR) The base rate that is used to price all Eurocurrency loans. The international equivalent of the domestic money market is called the Eurocurrency market. This is a market for short-term bank deposits denominated in U.S. dollars or other easily convertible currencies. Historically, the Eurocurrency market has been centered in London, but it has evolved into a truly global market. Eurocurrency deposits arise when a corporation or individual makes a bank deposit in a currency other than the local currency of the country where the bank is located. If, for example, a multinational corporation were to deposit U.S. dollars in a London bank, this would create a Eurodollar deposit (a dollar deposit at a bank in Europe). Nearly all Eurodollar deposits are time deposits. This means that the bank would promise to repay the deposit, with interest, at a fixed date in the future—say, in 6 months. During the interim, the bank is free to lend this dollar deposit to creditworthy corporate or government borrowers. If the bank cannot find a borrower on its own, it may lend the deposit to another international bank. The rate charged on these “interbank loans” is called the London Interbank Offered Rate (LIBOR), and this is the base rate that is used to price all Eurocurrency...
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