A money market instrument is one that is used to fund an investment. Commercial paper is a type of debt instrument in which the firm selling it must pay a higher price than expected in return for the loan. Treasury bills are the highest yielding money market instrument. They are also called Treasury bills because of their short duration. The Federal Reserve also issues Treasury bills and other types of debt securities. Which of the following is not a money market instrument?
Short-term borrowing
A fixed deposit (FD) is a deposit that is not market-based. This type of deposit is more like a bill of exchange, a form of short-term borrowing that provides better liquidity. The issuer of the FD is obligated to repay the money when it matures, and there is a small risk of default. Commercial banks also accept these bonds, which are issued as negotiable term deposits.
While the interest rates of money market instruments are low, the risks associated with them are also low. Although money market instruments are risk-free, they are generally more advantageous for borrowers with a good track record and a high credit rating. It is best to check the credit rating of the issuer before investing in their money. Money market instruments are regulated by the Securities and Exchange Board of India (SEBI).
Commercial paper
Commercial paper is a debt instrument issued by large institutions. The issue amount is normally $100,000 or more. Commercial paper is backed by the assets the SPC purchases. Typically, the commercial paper is purchased by money market funds, other corporations, or wealthy individuals. The money that is raised from selling commercial paper can only be used to purchase assets currently in use. This is what makes commercial paper so popular with investors. Commercial paper is also referred to as short-term debt.
The main buyers of commercial paper are banks, mutual funds, insurance companies, pension funds, and other financial institutions. Companies may also seek commercial paper as an alternative to business loans. Traditional financial advice would suggest that a company should eliminate its debt if possible. For example, a large retail organization may have acquired a logistics company for cash, but afterward have had to tighten its finances. This method of financing allows the retail organization to make payroll and expand its customer base while still ensuring a steady cash flow.
Certificate of Deposit
Both certificates of deposit and money market accounts are insured by the Federal Deposit Insurance Corporation, but their key differences are in their accessibility and minimum investment requirements. Money market accounts are negotiable and offer better liquidity, but their minimum investment requirements are higher. As a result, certificates of deposit are not always a better option for people who need access to their funds quickly. To learn more, read on! Here are some of the biggest differences between these two types of accounts and what they have in common.
A money market instrument is a security that provides a guaranteed amount of money to a specific person or entity for a certain period of time. T-bills are an example of a money market instrument. These instruments are issued by the Government of India and can have varying maturities from fourteen days to 364 days. Individuals, banks, and unincorporated bodies can invest in T-bills, but foreign institutional investors are not permitted to invest in them unless they meet specific SEBI criteria.
Treasury bill
A Treasury bill is a non-money market instrument. It is a government instrument that is available for purchase through a broker, but it cannot be considered a money market instrument. Investors can purchase T-bills at different discount rates. In a competitive bidding auction, investors submit their bids and the Central Bank decides which bids are accepted. There is a cut-off price for each type of bid, so investors above that amount are not guaranteed to receive a T-bill from the auction.
Final Words:
While a Treasury bill is not a money market instrument, some investors do buy it on the secondary market. This market is where investors buy and sell securities from other investors. Examples include the New York Stock Exchange (NYSE) and the London Stock Exchange (LSE). Another way to buy a Treasury bill is to invest it in a mutual fund, which is money collected from many investors and invested in stocks, bonds, and other securities. This type of investment is managed by a professional and is backed by a company’s funds.
