Types of Money Market Instruments
Description
This article is from the Investing Articles: Bonds series.
Types of Money Market Instruments
U.S. Treasure Bills
These are issued by the U.S. Government. They represent U.S. government obligations. The Treasury Department has weekly 3 month and 6 month T-Bill auctions. Once a month the Treasury Department auctions 6 month and 9 month T-Bills. The Treasury Department also offers 'Tax Anticipation Bills through special auctions. T-Bills are issued in denominations of $10,000 through $1,000,000. They have maturities of up to one year. There is an excellent secondary market for these. They are highly liquid. These are discounted in actual days based on a 360 day year.
Prime Sales Finance Paper
These are promissory notes from finance companies placed directly with the investor. These come in denominations of $1,000 to $5,000,000. There is a minimum order of $25,000. These are issued to mature on any day ranging from 3 days to 270 days. There is no secondary market for these. Under certain conditions, the company will buy back the securities prior to maturity. They will usually adjust the interest rate in this event. These can be either discounted or interest bearing. And they are based on actual days based on a 360 day year.
Dealer Paper (Finance)
These are promissory notes of finance companies sold through commercial paper dealers. Their denominations range from $100,000 to $5,000,000. They are issued to mature on any day from 15 days to 170 days. There is a limited secondary market. Early buyback can usually be negotiated with the dealer. These can be either discounted or interest bearing based on actual days and a 360 day year.
Dealer Paper (Industrial)
These are promissory notes of the leading and largest industrial firms. It is sold through commercial paper dealers. They are sold in denominations of $500,000 to $5,000,000. They mature on certain dates form 30 days to 180 days. There is a limited secondary market. These are discounted based on actual days and a 360 day year.
Prime Bankers' Acceptance
These are time drafts drawn on and accepted by a banking institution which substitutes its credit for that of the importer or holder of the merchandise. They range in denominations from $25,000 to $1,000,000. They mature in up to 270 days. There is a good secondary market in these. The bid is usually 1/2 of 1% higher than the offer. These are sold discounted in actual days based on a 360 day year.
Negotiable Time Certificates of Deposit
These are certificates of time deposit at a commercial bank. They range in denominations from $100,000 to $1,000,000. The maturities are unlimited. There is a good secondary market. The rate is based on a yield basis. And it is based on actual days for a 360 day year. Interest is paid at maturity.
Project Notes of Local Public Housing Agencies
These are notes of local agencies secured by a contract with federal agencies and by the pledge of the full faith and credit of the U.S. Government. They are sold in denominations of $1,000 to $1,000,000. They mature in periods of up to one year. There is a good secondary market for these. The rate is based on a yield basis. Interest is paid at maturity. And it is based on a 30 day month and a 360 day year.
Tax and Bond Anticipation Notes
These are notes of states, municipalities, or political subdivisions. They are issued in denominations of $1,000 to $1,000,000. They usually mature in periods of 3 months to 1 year from the date of issue. There is a good secondary market for these. The rate is determined on a yield basis. Interest is paid at maturity based on usually 30 days and a 360 day year.
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