chap 4

T-bills
t-bills are virtually default risk free and have little interest risk t-bills are auctioned, bids are submitted by gov security dealer, fin & non-fin corporations, and individuals bids can be competitive or noncompetitive competitive bids specify bid price & desired quantity discriminating price: average price of all bidders single price: single lowest price for all bidders noncompetitive bidders get preferential allocation and agree to pay the lowest price of winning competitive bids fed fund rate is target rate in conduct of monetary policy fed fund transactions are short term unsecured loans banks with excess reserves lend fed funds banks with deficient reserves borrow fed funds fed fund are single payment loans use single payment yield

Fed fund

RPs are short term collateralized loans ( typical collateral is US treasury security) CP is the larget money market in term of dollar outstanding
CP is unsecured short term corporate debt - maturity 1 to 127 days sold indirectly through dealer and brokers hold to maturity, no active secondary market yields are quoted discount basis ( like t-bills)

CDs are bearer instruments salable in the secondary market BA is used in international transaction
BA is bearer instruments salable in secondary markets

Chap 6 bond markets

T-notes & bonds
default risk free low returns interest rate risks: longer maturity wider price fluctuations when interest rate changes liquidity risk: older issued t-bond and t-notes trade less frequently than newly issued ones are security issued by state and local gov to fund imbalances between expenditures and receipts to finance capital outlays

municipal bonds

attractive to household investors because interest is exempted from federal and most local income taxes

Chap 7 mortgage
mortgage & characteristics of mortgage collateral: lenders place liens against properties that remain in place until loans are fully paid off

a down payment private mortgage insurance (PMI): is generally required when the loan to value ratio is more than 80% federally insurance mortgages repayment is guaranteed either the federal housing administration or the veterans admnistration amortization schedule distinguish 3 types of mortgage backed security collateralized mortgage obligations (CMOs) are multiclass pass through with multiple bond holder classes or tranches each bond holder class has a different guaranteed coupon mortgage prepayments retire only one tranche at a time mortgage backed bonds (MBBs) allow FIs to raise long term low cost funds without removing mortgages from their balance sheet a group of mortgage asset is pledged as collateral against a MBB issue, but their is no direct link between the cash flows of the mortgages and the cash flows on the MBB