The Federal Reserve plays an important role in the money markets, since it buys and sells many of these instruments to either reduce or increase the amount of cash available in the marketplace. However, it trades only in the safest instruments.
Note that commercial paper is NOT eligible for Fed trading.
For a better understanding as to what the Fed does and how it influences the economy, refer to the tutorial: The Federal Reserve.
Exam Tips and Tricks
Here is another topic that is likely to have only two questions on the exam. You might encounter a question like this one:
- The maximum maturity on commercial paper is:
- Six months
- Nine months
- Three months
- Twelve months
The correct answer is "b". While other money market instruments can have a maximum maturity of 12 months, commercial paper has a maximum maturity of 270 days.
Financial AdvisorThis event serves as a stark reminder to investors about understanding their portfolios.
Personal FinanceThe federal funds rate is the interest rate banks charge each other for overnight loans to meet their reserve requirements.
InsightsFew organizations can move the market like the Federal Reserve. As an investor, it's important to understand exactly what the Fed does and how it influences the economy.
TradingFind out how this institution has stabilized the U.S. economy during economic downturn.
Financial AdvisorTiming the market is very difficult. Here are the current economic conditions that can hint at when a bear market will arrive.
InvestingLearn why the bond market may not necessarily see an interest rate increase soon. Read about how the Federal Reserve will slowly raise interest rates.