FIN 4313 Chapter Notes - Chapter 7: United States Treasury Security, Repurchase Agreement, Federal Funds
Document Summary
If a bank is temporarily short of reserves in its account at the fed, it can go to the money markets to purchase (borrow) federal funds from another institution overnight to meet its requirements. Sold at a discount to par value and pay par value at maturity: add-on instruments: negotiable certificates of deposit, federal funds, and repurchase agreements. Sold at par value and pay par value plus interest at maturity. Treasury bills: treasury bills (t-bills)- issued by the federal government to cover current budget deficits and to refinance maturing government debt. Sold regularly through an auction process and have standard maturities of 4 weeks, Auctioned by us treasury and ny fed. Perceived to have almost no default risk: risk-free rate: the yield on treasury bills. Investors can enter more than one competitive bid, but the total of the bids cannot exceed 35 percent of the t-bills offered in the auction.