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

2. 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

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

4. 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

5. 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