Page 24 - Introduction To Investment Management

2.2.1 Money Market

Money market basically consists of the securities or financial instruments that are

short-term nature, low risk and marketable. Given below are the financial instruments in
the money market:

Treasury bill

Certificates of Deposit
Commercial Paper

Bankers’ Acceptance
Repurchase Agreement

Eurodollar
Federal Fund

LIBOR / KLIBOR

A. Treasury Bill
The government will issue Treasury bills to the public and corporate sectors as

their short-term financing. It is a very marketable financial instruments and highest in
demand. This is because the treasury bills are highly liquid, which are easily converted

into cash and has low risk. Apart from that, the interesting features are the profits on
purchases of treasury bills for some of the government is exempt from tax. Investors who

are interested to buy the bills are sold at a discounted price which the purchase price is
lower than the face value / par value. Treasury bills will be sold or handed over to the

government when they reach maturity at par. The difference between the selling price
and buying price is the profits earned on these investments.

The maturity of treasury bills was 91 days, 182 days, and 52 weeks. Treasury Bills
91 and 182 days are offered by the government on a weekly basis, while Treasury Bills 52
days is offered every month. The selling method of the bills is by auctioning the bills; the

highest bidder will get the contract. Individual investors who are interested can get

directly through the Treasury bill auction session or make a purchase from the secondary
market. The purchase can be requested through the authorised financial dealer / broker.

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