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Money market instruments (investment and risk characteristics (low default…
Money market instruments
main players in the money markets and their roles
clearing banks
lend and borrow via short term deposits to control liquidity levels
central banks
lender of last resort
standing by to provide liquidity to clearing banks
sets short-term interest rates via repo agreements and purchase of bills
other financial and non-financial institutions
lend and borrow short-term funds
investment and risk characteristics
low default risk due to short term (depends on issuer)
expected return lower than most other asset classes
return expected to move broadly in line with inflation
stable market values due to short term
term short
very low dealing expenses
marketable (exception of call and term deposits)
liquid
usually taxed as income
SYSTEM T
reasons for holding (POURS GRID)
description of instruments
treasury bills
commercial paper