Question

Describe who issues each of the following money market instruments:

a. Treasury bills

b. Certificates of deposit

c. Commercial paper

d. Repurchase agreement

e. Fed funds

Short answer

a. Government

b. Commercial banks

c. Banks and large corporations

d. Banks

e. Banks

Step-by-step solution

Step 1. Introduction 

The money market is the financial market that provides short-term funds. Thus, the money market instruments are those instruments that are used to raise funds for the short term. These funds generally have a maturity of less than a year.

Step 2. Explanation

a. Treasury bills - These are the most actively traded instrument and thus is the most liquid instrument. It involves very ow default and is a safe instrument. It is issued by the government.

b. Certificate of deposits - These are sold to depositors by commercial banks. An annual interest rate is provided annually and the principal amount is returned on maturity.

c. Commercial paper - These are issued by large corporations and banks.

d. Repurchase agreements - Repos or repurchase agreements are short-term instruments issued by banks.

e. Fed funds - These are loans that are provided by banks to other banks overnight.