Benefits of Holding Money Market Investment Instruments

by admin on November 11, 2013

Money market investment instruments come in different types, including commercial paper, AAA-rated debt securities, treasury securities, and others. Basically, money market accounts are offered in the form of holding and savings accounts, such as money market and mutual funds. The goal is to earn interest or generate a modest rate of return.

Treasury Securities and Benefits

Treasury securities come in different varieties, including bonds, notes, and bills. One of the major advantages is that this is a safe investment instrument in that treasury securities are issued by governments. It is a liquid instrument which makes the market for notes one of the most active and liquid on a global scale. Huge quantities of securities are sold and bought on a daily basis and at fair prices. Another advantage is that transactions occur electronically. Finally, treasury securities (government bonds) feature a fixed interest rate which guarantees stable returns. Other investment vehicles such as forex trading and stock offer profits that vary based on price fluctuations.

Commercial Paper

Commercial paper is offered to investors by large companies and corporations. The main goal is to gain access to funding without using valuable assets to guarantee loan repayment. Another option would be to file for public registration. Commercial paper offers plenty of benefits to companies, but the main one is that they are able to meet their short-term financing requirements. In essence, commercial paper is a way for businesses to raise capital in a cost-effective way and fund their operations. The good thing about this investment instrument is that it is cheaper than other alternatives, including bank loans. Investors are offered an exit option while this is a quick way for businesses to secure financing. Moreover, good rating means that businesses have access to low cost capital.

Other Types of Money Market Instruments

There are different types of instruments offered to investors, including repurchase agreements, banker’s acceptance, certificates of deposit, short-term tax exempts, and others. Certificates of deposit, for example, come in different types and are safe to invest in. You can choose from zero coupon, traditional, liquid, and bump up certificates of deposit. Holding liquid CDs is beneficial in that investors are allowed to withdraw cash, and no penalty fees are assessed. The only requirement is to maintain the minimum balance. The interest rate is typically lower compared to traditional certificates of deposit. One limitation is that the money deposited should remain in the account for a period of 7 days. If money is withdrawn within this period, penalty charges apply.

Comments on this entry are closed.

Previous post:

Next post: