Financial Market Theory

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Presentation transcript:

Financial Market Theory Tuesday, October 24, 2017 Professor Edwin T Burton

Money Markets Typically, mostly one year maturity or less But could be longer: maybe some three year maturity Consists of: Treasury bills (or treasury notes, bonds maturing in less than 3 years) Commercial Deposits (CDs) – essentially the bank “version” of treasury bills and notes Commercial Paper – essentially the corporate “version” of treasury bills Also, repos (repurchase agreement transactions) October 24, 2017

Repurchase Agreements: Repos Cash A B Treasury Securities This is a ‘general collateral’ repo. A is “doing” the repo October 24, 2017

Federal Funds Funds loaned (overnight) from one commercial bank to another Federal Funds Rate is the rate of interest on such loans October 24, 2017

Deposits at the Federal Reserve Cash that commercial banks deposit ‘overnight” at the Fed They count as “cash reserves” for reserve requirement purposes October 24, 2017

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