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Money Market Investments

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Money Market Investments

The money market is an investment arena where investors can buy short-term debt securities. Money market investments are the short-term debts of governments, banks, financial institutions, and corporations. They mature in anywhere from one day to one year. The large majority of investors in these securities are institutions; few are individuals.

Things To Know

  • Money market investments are short-term debts.
  • Corporations use commercial paper to finance inventories.

Larger securities broker-dealer firms and large commercial banks usually handle money market securities.

Money market investments include the following:

Negotiable CDs

Negotiable CDs are a type of certificate of deposit issued in denominations over $100,000 and sold on the open market. The depositor of a negotiable CD is allowed to negotiate the interest rate with the bank. They have maturities ranging from 30 days to more than one year.

Treasury bills

Treasury bills (T-bills) are federal government issues sold for discounts at auctions. They mature in 90, 180, or 360 days. The minimum face value sold is $100.

Commercial paper

Commercial paper is an unsecured, short-term IOU issued by corporations with good credit. These corporations use them to finance inventories. Companies discount and sell commercial paper to other companies and sometimes to individual investors. Maturities are 270 or fewer days.

Banker’s acceptances

Banks that want to finance importing and exporting with firms in foreign countries use banker’s acceptances. A bank pays a foreign party on behalf of an importer and assumes liability. Banker’s acceptances are usually issued in denominations over $100,000.

Repurchase agreements

A repurchase agreement (repo) is a contract between a buyer and a seller of debt securities, stating that the seller will repurchase the securities after a certain length of time or after certain conditions are met. A bank or dealer sells some of its securities to another party, who buys it back at a higher price. Maturities range from one to 90 days.

Money market mutual funds

Money market mutual funds normally consist of securities that are both short term and high quality. The funds use money from large numbers of investors to buy these securities. They make investing in this market easy for small investors, but are not entirely without risk. The goal of funds like these is to earn some interest while maintain a net asset value of $1 per share.

Learn more about the risks of money market mutual funds.