Money Market Instruments
Money market securities are debt securities that mature in 397 days or less. Since 397 days is around one year, you may see one year on your exam. Money market securities are usually highly liquid, meaning they can be easily bought and sold. They are also considered very safe. In fact, they are often referred to as cash equivalents because they are almost as liquid and safe as cash. They usually offer interest payments, but the yields are small compared to riskier, longer term investments.
Money market investments are subject to purchasing power risk because they offer such low yields that they often can’t keep up with inflation. Some of the more common money market securities used by municipalities to meet their yield restrictions are U.S. Treasury bills, commercial paper, and tax-exempt municipal notes. Certificates of deposit (CDs) are not considered securities but are still considered part of the money market.
A certificate of deposit is an investment vehicle that pays a fixed interest rate and has a fixed maturity date. CDs are issued by banks and are insured by the Federal Deposit Insurance Corporation (FDIC) up to a certain amount (usually $250,000). For investors who have savings built up, a CD generall