Topic 4- FM- Set 2

Basically, the range of instruments which are used to borrow and lend in the Money Market includes:

1) Cash products (Cash/ Loans)

2) Discount Securities (Commercial bills / Promissory notes/ Treasury notes/ Certificate of deposit/ Repurchase agreements)

• Ok, I got it

• I don't know the different between them

Cash products are the simplest of products traded.  They are based on the borrowing and lending of cash between two parties.

Cash products are quoted on a yield (interest rate) basis.

Hence, it's important to understand the two-way pricing. Do you know what it is?

• Yes- It is the two prices quoted (buying price & Selling price)

• No, I don't know

Your company wishes to borrow $5,000,000 overnight:

You ring 3 banks and get 3 prices.

A   5.82/85

B   5.75/80

C   5.75/77

Which bank should your company consider?

• A

• B

• C

Loans - short term requirements from companies, banks and individuals to borrow money

• Ok, I got it

• Please explain

Now, we will discuss about Discount Securities.

They all traded in the market at a price that is less than their face value, or at a discount to the face value of the security. 

Which of the following are the Discount Securities?

• Commercial bills

• Promissory Notes

• Treasury Notes

• Certificates of deposit

• Repurchase agreements

Which financial instrument is issued by the government

• Promissory Note

• Treasury Note

• Certificate of Deposit

• Treasury Bill

Which of the following is a time deposit offered by banks with a fixed interest rate and maturity date?

• Treasury Note

• Promissory Note

• Certificate of Deposit

• Treasury Bill

Please rank these financial instruments by their level of risk, from least risky to most risky:

• Treasury Notes, Certificates of Deposit, Promissory Notes.

• Certificates of Deposit, Promissory Notes, Treasury Notes

• Promissory Notes, Treasury Notes, Certificates of Deposit