The Different Types Of Financial Instruments

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The first type of financial instrument is the treasury bill. Treasury bills or T-bills are direct obligations of the US government and thus are considered to have no default risk. They are sold weekly and have maturities that range from three months to one year. Financial institutions, corporations and individuals buy the securities for their liquidity and safety of principal.

The second type of financial instrument is known as the negotiable certificates of deposit. Negotiable certificates of deposit or otherwise known as NCDs are large denomination time deposits of the nations largest commercial banks. Unlike other time deposits of most commercial banks, negotiable certificates of deposit may be sold in the secondary market before their maturity. Only a handful of banks sell the negotiable certificates of deposit or engage in best forex trading markets.

The third type of financial instrument is known as commercial paper. Commercial paper is the unsecured promissory note otherwise known as the IOU of a large business. Commercial paper typically has maturities ranging from a few days to 120 days and do not have an active secondary market. Corporations and finance companies are major issuers of commercial paper.

The last type of financial instrument are generally known as federal funds. Technically, federal funds are bank deposits held with the federal reserve bank. Banks with deposits in excess of required reserves may land of those excess reserves called Fed funds to other banks. The banks have acquired the Fed funds they use them to cover a deficit reserve position bar can use the funds to make consumer or business loans. The Fed funds loans are typically for one day or for over a weekend.
At a more practical level you may think of the Fed funds market as the market in which banks make short-term unsecured loans to one another and the Fed funds interest rate is the intra-bank lending rate. Though somewhat confusing the Fed funds market has no connection with U.S. Treasury but it does offer some of the best forex trading tips. While a lot of these are out of the reach of the average investor knowing about them can help understand the fundamentals that drive the market.
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The Different Types Of Financial Instruments

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This article was published on 2011/01/05