alexa Missed Call Number

What is your Credit Score? Get FREE Credit Score in 1 Minute!

Get Start Now!
Home Articles Money Market Instruments

Money Market Instruments

Mr. C.S. Sudheer | Updated On Friday, September 28,2018, 11:04 AM

5.0 / 5 based on 1 User Reviews

Money Market Instruments



Money Market Instruments provide the tools by which one can operate in the money market. Money Market Instruments are used by corporations, governments and individual investors. Common types Of Money Market Instruments are:

Treasury Bills: 

The Treasury bills are short-term money market instrument that mature in a year or less than that. The purchase price is less than the face value. At maturity the government pays the Treasury Bill holder the full face value. The Treasury Bills are marketable, affordable and risk free. The security attached to the treasury bills comes at the cost of very low returns.

Certificate of Deposit:

The certificates of deposit are basically time deposits that are issued by the commercial banks with maturity periods ranging from 3 months to five years. The return on the certificate of deposit is higher than the Treasury Bills because it assumes a higher level of risk.

Advantages of Certificate of Deposit as a money market instrument are

1. Since one can know the returns from before, the certificates of deposits are considered much safe.

2. One can earn more as compared to depositing money in savings account.

3. The Federal Insurance Corporation guarantees the investments in the certificate of deposit.

Disadvantages of Certificate of deposit as a money market instrument:

1. As compared to other investments the returns is less.

2. The money is tied along with the long maturity period of the Certificate of Deposit. Huge penalties are paid if one gets out of it before maturity.

Commercial Paper: 

Commercial Paper is short-term loan that is issued by a corporation use for financing accounts receivable and inventories. Commercial Papers have higher denominations as compared to the Treasury Bills and the Certificate of Deposit. The maturity period of Commercial Papers are a maximum of 9 months. They are very safe since the financial situation of the corporation can be anticipated over a few months.

Banker's Acceptance: 

It is a short-term credit investment. It is guaranteed by a bank to make payments. The Banker's Acceptance is traded in the Secondary market. The banker's acceptance is mostly used to finance exports, imports and other transactions in goods. The banker's acceptance need not be held till the maturity date but the holder has the option to sell it off in the secondary market whenever he finds it suitable.

Euro Dollars: 

The Eurodollars are basically dollar- denominated deposits that are held in banks outside the United States. Since the Eurodollar market is free from any stringent regulations, the banks can operate at narrower margins as compared to the banks in U.S. The Eurodollars are traded at very high denominations and mature before six months. The Eurodollar market is within the reach of large institutions only and individual investors can access it only through money market funds.


The Repo or the repurchase agreement is used by the government security holder when he sells the security to a lender and promises to repurchase from him overnight. Hence the Repos have terms raging from 1 night to 30 days. They are very safe due government backing.

Repurchase agreements:

Short-term loans—normally for less than two weeks and frequently for one day—arranged by selling securities to an investor with an agreement to repurchase them at a fixed price on a fixed date.

Federal Agency Short-Term Securities:

(in the US). Short-term securities issued by government sponsored enterprises such as the Farm Credit System, the Federal Home Loan Banks and the Federal National Mortgage Association.

Federal funds:

(in the US). Interest-bearing deposits held by banks and other depository institutions at the Federal Reserve; these are immediately available funds that institutions borrow or lend, usually on an overnight basis. They are lent for the federal funds rate.

Municipal notes:

(in the US). Short-term notes issued by municipalities in anticipation of tax receipts or other revenues.

Money market mutual funds:

Pooled short maturity, high quality investments which buy money market securities on behalf of retail or institutional investors.



Did you find this article useful? You can Rate us
5.0 / 5 based on 1 User Reviews
Article Author

Mr. C.S. Sudheer

Mr. C S Sudheer is the founder and CEO of – India’s largest Financial Education Company. He started his career with ICICI Prudential Life Insurance and later on worked with Howden India. After his brief stint in Howden India, he moved on and incorporated Suvision Holdings Pvt Ltd which is the sole promoter of He aims to build a nation that is financially literate with investment savvy citizens.

Subscribe to our Youtube Channel

Most Popular

Why one must never neglect estate planning

07 January 2014, Tuesday

Things to Know About Hybrid Mutual Funds

26 November 2013, Tuesday

What is Car Insurance? Why is it important?

21 October 2009, Wednesday

Latest Stories

How the Stock Markets Work?

18 March 2019, Monday

How can I Invest in Share Market?

16 March 2019, Saturday

Popular Tags



What is your Credit Score? Get FREE Credit Score in 1 Minute!

Get Start Now!
Get It now!