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A Banker's Acceptance Is Often Used in Importing and Exporting, With The Importer's Bank Guaranteeing Payment To The Exporter

Money market securities are short-term debt instruments with a maturity of less than one year. There are various types of money market instruments including commercial paper, bankers' acceptances, treasury bills, repurchase agreements, government agency notes, local government notes, interbank loans, time deposits, and papers issued by international organizations. Commercial paper is issued by large corporations to meet short-term financial obligations and is considered relatively risky unsecured debt. Bankers' acceptances involve banks guaranteeing payment on a loan between a non-bank firm and importer/exporter. Treasury bills are considered very low risk investments issued by national governments. Government agency notes and local government notes are issued by state/local authorities to fund projects and operations.

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107 views2 pages

A Banker's Acceptance Is Often Used in Importing and Exporting, With The Importer's Bank Guaranteeing Payment To The Exporter

Money market securities are short-term debt instruments with a maturity of less than one year. There are various types of money market instruments including commercial paper, bankers' acceptances, treasury bills, repurchase agreements, government agency notes, local government notes, interbank loans, time deposits, and papers issued by international organizations. Commercial paper is issued by large corporations to meet short-term financial obligations and is considered relatively risky unsecured debt. Bankers' acceptances involve banks guaranteeing payment on a loan between a non-bank firm and importer/exporter. Treasury bills are considered very low risk investments issued by national governments. Government agency notes and local government notes are issued by state/local authorities to fund projects and operations.

Uploaded by

Jenilyn Pepito
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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Money market securities are short-term instruments with a maturity of less than one year.

There are
numerous type of money market instruments. The best known are commercial papers, bankers’
acceptances, treasury bills, repurchase agreement, government agency notes, local government notes,
interbank loans, time deposits, bankers’ acceptance, and papers issued by international organization.

Commercial paper Is an obligation of a private sector firm or a government sponsored corporation.


Commercial paper is not usually backed by any form of collateral, making it a form of unsecured debt. As
a result, only firms with high-quality debt ratings will easily find buyers without having to offer a
substantial discount (higher cost) for the debt issue. It is typically issued by large banks or corporations
to cover short-term receivables and meet short-term financial obligations, such as funding for a new
project.

A bankers’ acceptance is a promissory note issued by a non-bank by a non-firm to a bank to return a


loan. The bank resells the note in the money market at a discount and guarantees payment. A banker's
acceptance is often used in importing and exporting, with the importer's bank guaranteeing payment to
the exporter.

Treasury bills is issued by the National government and generally considered the safest of all possible
investment in that currency. When an investor buys a Treasury Bill, they are lending money to the
government. The US Government uses the money to fund its debt and pay ongoing expenses.

Government agency notes is when an investor receives regular interest payments while holding this
agency bond. At its maturity date, the full face value of the agency bond is returned to the bondholder.
are for heavy borrowers such as development banks, housing and finance corporations, education
lending agencies, and agricultural finance agency.

Local Government Notes are issued by provincial, local governments, and by agencies of these
government such as school authorities, and transport commission. Interbank Loans are loans extended
from one bank to another with which it has no affiliation. Time Deposits are interest bearing bank
deposits that cannot be withdrawn without penalty before a specified date. Repos or Repurchase
agreement keeps the market highly liquid, which in turn that ensures there will be a constant supply of
buyers for new money market instrument.

Capital market is a financial market in which longer-term debt and equity instruments are traded, this
includes bonds, stocks, and mortgages. Bond certificate Is the tangible evidence of debt issued by a
corporation or a government. It represents a loan made by investor to the issuer. Bonds are issued by
governments, municipalities, and corporations. The interest rate (coupon rate), principal amount and
maturities will vary from one bond to the next in order to meet the goals of the bond issuer (borrower)
and the bond buyer (lender). A stock (also known as equity) is a security that represents the ownership
of a fraction of a corporation it is a form of security that indicates the holder has proportionate
ownership in the issuing corporation. Corporations issue (sell) stock to raise funds to operate their
businesses. Investors most commonly buy and trade stock through brokers. A mortgage is a debt
instrument, secured by the collateral of specified real estate property, that the borrower is obliged to
pay back with a predetermined set of payments. Individuals and businesses use mortgages to make
large real estate purchases without paying the entire purchase price up front.
The difference between bonds and equity is that a bond is a debt obligation where the company
borrows cash and agrees to pay a coupon (yearly interest rate, usually on a quarterly period) and pay
back the full amount at maturity (the agreed upon end date). Equity (stocks) is a share of ownership in
the company. There is no maturity date and no coupon (though some companies do pay a dividend but
this is a “bonus” and is not agreed upon in advance). In both cases, a company is raising funds. In one
case (a bond) it has to pay back at a future date with interest. In the other (equity), there is nothing to
pay back, but it has given up a piece of its ownership (a small piece for each share). The value of a stock
or bond (how much they are worth) depends on how they trade in the capital markets. Bonds (mostly)
trade “over the counter" while equity (stocks) trade on an exchange. If I have the money to invest, I will
invest it on a Bond security, Bond security tend to be less risky than equity investments but usually offer
a lower but more consistent return. They are less volatile than common stocks, with fewer highs and
lows than the stock market. The bond and mortgage market historically experiences fewer price
changes, for better or worse, than stocks.

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