What are 2 money market instruments?
Interbank loans (loans between banks), money market mutual funds, commercial paper, Treasury bills and securities lending and repurchase agreements, are all examples of money markets instruments.
Money markets include markets for such instruments as bank accounts, including term certificates of deposit; interbank loans (loans between banks); money market mutual funds; commercial paper; Treasury bills; and securities lending and repurchase agreements (repos).
The main money market instruments are Treasury bills, commercial papers, certificate of deposits, and call money. It is highly liquid as it has instruments that have a maturity below one year. Most of the money market instruments provide fixed returns.
Money Market Securities. Instruments that are traded on the various money markets, usually with a term of less than a year. Consist of negotiable CDs, banker's acceptances, government securities, commercial paper, municipal notes, federal funds, and repos.
| Fund | Expense Ratio | 7-day SEC yield |
|---|---|---|
| Vanguard Municipal Money Market Fund (VMSXX) | 0.15% | 3.3% |
| Fidelity Money Market Fund (SPRXX) | 0.42% | 5.0% |
| Schwab Value Advantage Money Fund - Investor Shares (SWVXX) | 0.34% | 5.2% |
| BlackRock Wealth Liquid Environmentally Aware Fund (PINXX) | 0.49% | 5.0% |
Financial instruments may be divided into two types: cash instruments and derivative instruments. Financial instruments may also be divided according to an asset class, which depends on whether they are debt-based or equity-based. Foreign exchange instruments comprise a third, unique type of financial instrument.
Types of money market funds
Investments can include short-term U.S. Treasury securities, federal agency notes, Eurodollar deposits, repurchase agreements, certificates of deposit, corporate commercial paper, and obligations of states, cities, or other types of municipal agencies—depending on the focus of the fund.
The different kinds of money market instruments include Certificates of Deposit, Bankers Acceptance, Treasury Bills and Commercial Papers. Whereas common stock, preferred stock, and Treasury Bonds classify as types of financial securities used within organizations.
Equity Shares is not a Money Market Instrument.
Money market instruments are generally characterized by a high degree of safety of principal and are most commonly issued in units of $1 million or more. Maturities range from one day to one year; the most common are three months or less.
What are money markets accounts?
A money market account is a type of account offered by banks and credit unions. Like other deposit accounts, money market accounts are insured by the FDIC or NCUA, up to $250,000 held by the same owner or owners. Money market accounts tend to pay you higher interest rates than other types of savings accounts.
A money market hedge is a technique for hedging foreign exchange risk using the money market, the financial market in which highly liquid and short-term instruments like Treasury bills, bankers' acceptances, and commercial paper are traded.
Money market instruments are financial instruments which are issued with a maturity of one year or less. They provide a market for investors to earn a return on liquid assets; borrowers who need short-term liquidity have access to these funds; and they provide the Fed with a means to effect monetary policy.
Money market instruments designate an assortment of highly liquid debt securities, most of which have short-term maturity dates.
A money market account is an interest-bearing savings account that offers a higher-yield interest rate, allowing you to earn faster than a traditional savings account.
Treasury Bills (T-Bills)
Treasury Bills, which are issued by the federal government, are among the safest money market securities available. Treasury bills, however, have no risk. i.e., are instruments with zero risk. As a result, the results one receives from them are not desirable.
No financial institutions currently offer 7% interest savings accounts. But some smaller banks and regional credit unions are currently paying more than 6.00% APY on savings accounts and up to 9.00% APY on checking accounts, though these accounts have restrictions and requirements.
U. S. Treasury bills are considered the most liquid security in the money market. As its credibility and liquidity lie in the hands of the government of the United States. Therefore, these securities can be easily sold against cash even before the date of maturity in the market by the security holder.
Financial derivatives enable parties to trade specific financial risks (such as interest rate risk, currency, equity and commodity price risk, and credit risk, etc.) to other entities who are more willing, or better suited, to take or manage these risks—typically, but not always, without trading in a primary asset or ...
- Common Stock. The most universal instrument is common stock or ordinary shares giving the holder the right to vote on company policy matters.
- Preferred Stock. ...
- Equity Options. ...
- Equity Warrants. ...
- Equity Hybrids. ...
- Exchange Traded Funds – ETFs. ...
- Equity Swaps.
What are the disadvantages of financial instruments?
Financial Instruments – Drawbacks
Cash deposits and money market accounts, considered liquid assets, will not permit money withdrawals for the duration of the agreement. A corporation could receive lower returns if it wants to withdraw before maturity.
- Money market funds.
- Mutual funds.
- Index Funds.
- Exchange-traded funds.
- Stocks.
- Alternative investments.
- Cryptocurrencies.
- Real estate.
While money market funds aren't ideal for long-term investing due to their low returns and lack of capital appreciation, they offer a stable, secure investment option for individuals looking to invest for the short term.
Money Market Funds
Ultra-conservative investors and unsophisticated investors often stash their cash in money market funds. While these funds provide a high degree of safety, they should only be used for short-term investment. There's no need to avoid equity funds when the economy is slowing.
In reality, a bond is just one type of fixed income security. The difference between the money market and the bond market is that the money market specializes in very short-term debt securities (debt that matures in less than one year).
