chapter 6 treasury

Money market

- is an important arm of financial markets in developing economies. It facilitates dealing in short-dated, fixed income funds and securities._____ are important to treasury professionals as they play a crucial role in providing liquidity to the financial system and facilitating the efficient allocation of short-term funds.____ refer to a global marketplace where highly liquid (i.e., easily converted to cash) short-term financial investments are traded.

interbank segment of money market

- is usually active, vibrant and challenging

Interbank dealers

- make and lose money dependent on how they anticipate market risk.

Money market participants

- are often simultaneously issuers and investors, adjusting their positions based on their immediate liquidity requirements ______banks, corporations, governments and institutional investors

Money market securities

- have a maturity of one year or less and are typically debt instruments

Commercial paper

- refers to unsecured (i.e., lacking collateral) promissory notes representing an issuer's debt obligation. ___ is typically issued at a discount to its face value, with the difference influencing its yield

Asset backed commercial paper

- is CP secured by specific assets such as short-term trade receivables._____ is issued through a financial conduit and is either backed by assets from a single institution (single-seller) or multiple issuers (multi-seller).

bank obligations

- Banks raise funds in money markets using various instruments, including time deposits, banker's acceptances and repurchase agreements, collectively known as

Bankers acceptances

- come from commercial trade. They are time drafts accepted by a bank and guarantee payment at maturity.

Government Paper

- Government agencies raise funds in the money market by issuing short-term promissory notes called ____is backed by the respective government, making the market liquid and active. It has varying maturities to match investor liquidity needs. _____ is typically issued at a discount and offers lower yields due to lower default and liquidity risk compared with other instruments

US government paper T-bills

- are short-term money market instruments sold at a discount from their face value, with original maturities of four to 52 weeks

floating rate notes

- Firms, banks, governments and agencies raise longer-term funds through____have large minimum denominations, maturities of a year or more and pay a regular coupon tied to a reference rate, such as the U.S. Fed funds rate

repurchase agreement

- a security owner, typically a bank or securities dealer, sells a security to an investor with an agreement to repurchase it later at a slightly higher price

Money market funds

- are managed, pooled investments offered by financial institutions and managed by financial experts_____provide a number of benefits to treasurers including principal security, daily liquidity, diversification and economies of scale with minimal transaction costs _____ provide a hassle-free and cost -effective investment solution in addition to reduced risk through diversification

Short duration mutual funds

- invest in securities with maturities typically ranging from one to three years, which exceeds those of traditional money market instruments____are strategically used to match investments with expected cash flow needs

Discount yield

- computes the expected return of a bond purchased at a discount and held until maturity____computed using a standardized 30-day month and 360-day year.

bond equivalent yield

- shows the annual return on a bond. Discounted bonds don't pay regular interest ____converts the discount bond's return into an annual rate, so investors can compare it directly with the yearly yields of traditional bonds

effective annual interest rate

- is the actual return on a savings account or other interest-bearing investment when the effects of compounding are considered._____is sometimes called the effective rate or the annual equivalent rate (AER).