Chapter 4 - Money Markets, Bond Markets, and Mortgage Markets

Abstract

Capital markets consist of money market, bond market, mortgage markets, stock market, spot or cash markets, derivatives markets, foreign exchange and interbank markets. Money market instruments consist of Treasury bills, federal agency notes, certificates of deposit (CD), commercial papers, bankers’ acceptances, repurchase agreements (repos), among others. The securities market consists of primary and secondary markets. The primary market works with new issues whereas the secondary market is meant for trading of existing issues. Capital market instruments include Treasury notes, Treasury bonds, municipal bonds, corporate bonds. Corporate bonds consist of zero coupon bonds, floating rate bonds, and convertible bonds. Bond ratings are assigned by credit rating agencies (e.g., S&P, Moody’s, etc.). The major debt issued in the international market includes euro banknotes, Eurobonds, euro medium-term notes, global and foreign bonds. The three major groups in bond market are issuers, underwriters, and purchasers. Mortgage-backed securities (MBS) are created through the process of securitization. The different types of MBS include pass-through securities and collateralized mortgage obligations.