MONEY MARKET

CONITNUED FROM YESTARDAY......
Certificate of Deposit: It is a short term borrowing more like a bank term deposit account. It
is a promissory note issued by a bank in form of a certificate entitling the bearer to receive
interest. The certificate bears the maturity date, the fixed rate of interest and the value. It can
be issued in any denomination. They are stamped and transferred by endorsement. Its term
generally ranges from three months to five years and restricts the holders to withdraw funds
on demand. However, on payment of certain penalty the money can be withdrawn on demand
also. The returns on certificate of deposits are higher than T-Bills because it assumes higher
level of risk. While buying Certificate of Deposit, return method should be seen. Returns can
be based on Annual Percentage Yield (APY) or Annual Percentage Rate (APR). In APY,
interest earned is based on compounded interest calculation. However, in APR method,
simple interest calculation is done to generate the return. Accordingly, if the interest is paid
annually, equal return is generated by both APY and APR methods. However, if interest is
paid more than once in a year, it is beneficial to opt APY over APR.
Banker’s Acceptance: It is a short term credit investment created by a non financial firm and
guaranteed by a bank to make payment. It is simply a bill of exchange drawn by a person and
accepted by a bank. It is a buyer’s promise to pay to the seller a certain specified amount at
certain date. The same is guaranteed by the banker of the buyer in exchange for a claim on
the goods as collateral. The person drawing the bill must have a good credit rating otherwise
the Banker’s Acceptance will not be tradable. The most common term for these instruments
is 90 days. However, they can very from 30 days to180 days. For corporations, it acts as a
negotiable time draft for financing imports, exports and other transactions in goods and is
highly useful when the credit worthiness of the foreign trade party is unknown. The seller
need not hold it until maturity and can sell off the same in secondary market at discount from
the face value to liquidate its receivables.
An individual player cannot invest in majority of the Money Market Instruments, hence for
retail market, money market instruments are repackaged into Money Market Funds. A
money market fund is an investment fund that invests in low risk and low return bucket of
securities viz money market instruments. It is like a mutual fund, except the fact mutual funds
cater to capital market and money market funds cater to money market. Money Market funds can be categorized as taxable funds or non taxable funds.
Thus there are two modes of investment in money market viz Direct Investment in Money
Market Instruments & Investment in Money Market Funds.

TO BE CONTINUED TOMORROW.......

TOPICS OF TOMORROW WILL BE......

Functioning of Money Market Account.................

“ENJOY TODAY ,WAIT FOR BEAUTIFUL TOMORROW ”

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PRESIDENT
JAB WE MET CA
REDEFINING PROFESSIONALISM......