Abstract
This chapter reviews the cash instruments traded in the money market. The cash instruments traded in the money market includes Treasury bill, time deposit, certificate of deposit, commercial paper, bankers acceptance, and bill of exchange. A Treasury bill is used by sovereign governments to raise short-term funds, while certificates of deposit (CDs) are used by banks to raise finance. The other instruments are used by companies and occasionally banks. Each instrument represents an obligation on the borrower to repay the amount borrowed on the maturity date together with interest if this applies. Money market deposits are fixed-interest term deposits of up to one year with banks and securities houses. They are also known as time deposits or clean deposits. They are not negotiable so cannot be liquidated before maturity. Certificates of Deposit (CDs) are receipts from banks for deposits that have been placed with them. They were first introduced in the sterling market in 1958. Banks, merchant banks, and building societies issue CDs to raise funds to finance their business activities. A CD will have a stated interest rate and fixed maturity date and can be issued in any denomination. On issue, a CD is sold for face value, so the settlement proceeds of a CD on issue are always equal to its nominal value.
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