What Are Money Market Instruments?

by Sabrina Ashley ; Updated July 27, 2017

Money market instruments are securities or investments that have high liquidity and a short-tem maturity. High liquidity means the security can be converted to cash easily. Short-term maturity means the security is due or expires in one week to one year. Many corporations and institutional investors, such as banks, insurance companies and brokerage firms, use money market securities to lend, borrow and trade money. Individual investors can take advantage of these investment vehicles as well.

Certificates of Deposit (CDs)

CDs are savings certificates that allow the owner to receive a fixed interest rate for one month to five years. CDs are available through banks and are insured by the Federal Deposit Insurance Corporation (FDIC).

Treasure Bills (T-Bills)

T-Bills are debts guaranteed by the federal government. In short, you are lending money to the government in denominations of $1,000 up to $5 million. These debts have different maturity dates available--typically, four, 13 or 26 weeks. On the maturity date, the debt is repaid.

Commercial Paper

Corporations issue commercial paper as unsecured debt instruments to raise money for the short term, usually about 270 days. Only companies with high credit ratings will find investors, because no collateral is offered.

Bankers’ Acceptances

A bankers’ acceptance (BA) is “a short-term credit investment created by a non-financial firm and guaranteed by a bank,” according Investopedia.com. Corporations use BAs, which sell at a discount from the face value, to finance imports, exports or other goods-related transactions, particularly when they're dealing with an unfamiliar trade partner.

Repurchase Agreements (Repos)

Repos are a form of overnight borrowing by dealers of U.S. Treasury bonds, bills and notes. The dealers sell the government securities to investors and buy them back the next day.

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