Money Market Securities - : Certificates of Deposit (CDS)
Money Market Securities - : Certificates of Deposit (CDS)
Money Market Securities - : Certificates of Deposit (CDS)
Sakiw
BSBA FM-4
These securities are generally considered to be high grade because the maturity is short and they
are typically issued by large, trustworthy organizations including the United States government.
This makes the risk associated with holding a Money Market Security very low. However, low risk
also means low return.
•Treasury Bills (T-bills) - Issued by the Central Government, Treasury Bills are known to be one
of the safest money market instruments available. However, treasury bills carry zero risk. I.e. are
zero risk instruments. Therefore, the returns one gets on them are not attractive. Treasury bills
come with different maturity periods like 3-month, 6-month and 1 year and are circulated by
primary and secondary markets.
•Certificates of Deposit (CDs) - A Certificate of Deposit or CD, functions as a deposit receipt for
money which is deposited with a financial organization or bank. However, a Certificate of Deposit
is different from a Fixed Deposit Receipt in two aspects. The first aspect of difference is that a CD
is only issued for a larger sum of money.
Accounts that exceed these limitations may be subject to a fee and/or closed. (Savings accounts
have transaction limits, as well. Checking accounts do not have transaction limits.)
These seek to preserve the amount invested by maintaining a net asset value (NAV1) of $1 per
share. They may also produce a small, but not guaranteed, return for the investor. Portfolios are
comprised of short-term (less than one year) securities representing high-quality, liquid debt and
monetary instruments. Examples include short-term obligations issued or guaranteed by U. S.
Corporations or state and municipal governments, high-grade commercial paper, and U.S.
Treasury securities. Money market mutual funds are not FDIC insured.
Money market funds are not appropriate for individuals that are seeking an investment that is
likely to significantly outpace inflation, investing for retirement or other long term goals and/or,
investing for growth or maximum current income.
Capital markets -
are venues where savings and investments are channeled between the suppliers who
have capital and those who are in need of capital. The entities who have capital include retail and
institutional investors while those who seek capital are businesses, governments, and people.
Capital markets are composed of primary and secondary markets. The most common capital
markets are the stock market and the bond market.
1.Shares -
is the share capital of the company. Share is one of the units into which the capital of
company is divided. A person having shares of the company is called shareholder.
Types of Shares
1.Equity Shares -
are those shares which are ordinary in the course of company's business. They are also
called as ordinary shares. These share holders do not enjoy preference regarding payment of
dividend and repayment of capital.Equity shareholders are paid dividend out of the profits made
by a company.
2.Preference Shares-
more commonly referred to as preferred stock, are shares of a company's stock with
dividends that are paid out to shareholders before common stock dividends are issued. If the
company enters bankruptcy, preferred stock holders are entitled to be paid from company assets
before common stockholders
2. Debentures -
Long term borrowed fund of the company. They have fixed maturity period as well
as fixed interest rate. Certificates issued under common seal of the company.
3. Bonds -
Are long term borrowed funds of the government and also the companies. Like
debentures it has a fixed maturity date and fixed interest rate. Interes charges on bonds are called
coupon rate.
4. Derivatives-
Underlying assets. The price riskiness and function of derivative depends on the
underlying assets since whatever affects the underlying asset must be derivative
• future - known simply as forwards—are similar to futures, but do not trade on an exchange,
only over-the-counter. When a forward contract is created, the buyer and seller may have
customized the terms, size and settlement process for the derivative. As OTC products, forward
contracts carry a greater degree of counterparty risk for both buyers and sellers.
• Option - An options contract is similar to a futures contract in that it is an agreement between
two parties to buy or sell an asset at a predetermined future date for a specific price. The key
difference between options and futures is that, with an option, the buyer is not obliged to
exercise their agreement to buy or sell. It is an opportunity only, not an obligation—futures are
obligations. As with futures, options may be used to hedge or speculate on the price of the
underlying asset.
• Swaps - Swaps are another common type of derivative, often used to exchange one kind of
cash flow with another. For example, a trader might use an interest rate swap to switch from a
variable interest rate loan to a fixed interest rate loan, or vice versa.
• Exhange traded funds or commodities
The MBS is a type of asset-backed security. As became glaringly obvious in the subprime
mortgage meltdown of 2007-2008, a mortgage-backed security is only as sound as the mortgages
that back it up.
Mortgage-backed security turns the bank into a middleman between the homebuyer and the
investment industry. A bank can grant mortgages to its customers and then sell them on at a
discount for inclusion in an MBS. The bank records the sale as a plus on its balance sheet and
loses nothing if the homebuyer defaults sometime down the road.