We hope this tutorial has given you an idea of the securities in the money market. It's not exactly a sexy topic, but definitely worth knowing about, as there are times when even the most ambitious investor puts cash on the sidelines.
- The money market specializes in debt securities that mature in less than one year.
- Money market securities are very liquid, and are considered very safe. As a result, they offer a lower return than other securities.
- The easiest way for individuals to gain access to the money market is through a money market mutual fund.
- T-bills are short-term government securities that mature in one year or less from their issue date.
- T-bills are considered to be one of the safest investments - they don't provide a great return.
- A certificate of deposit (CD) is a time deposit with a bank.
- Annual percentage yield (APY) takes into account compound interest, annual percentage rate (APR) does not.
- CDs are safe, but the returns aren't great, and your money is tied up for the length of the CD.
- Commercial paper is an unsecured, short-term loan issued by a corporation. Returns are higher than T-bills because of the higher default risk.
- Banker's acceptances (BA)are negotiable time draft for financing transactions in goods.
- BAs are used frequently in international trade and are generally only available to individuals through money market funds.
- Eurodollars are U.S. dollar-denominated deposit at banks outside of the United States.
- The average eurodollar deposit is very large. The only way for individuals to invest in this market is indirectly through a money market fund.
- Repurchase agreements (repos) are a form of overnight borrowing backed by government securities.
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