Finance English practice: Unit 25 — Money Markets

Biz English

Apr 18, 2016

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Complete the sentences below. Use the key words if necessary.
- The money markets
  
  key words
  money markets      ○      short-term capital      ○      short-term liquidity      ○      cash flows      ○      competitive      ○      investment companies      ○      financial instruments
  
  The consist of a network of corporations, financial institutions, investors and governments, which need to borrow or invest (up to 12 months). For example, a business or government that needs cash for a few weeks only can use the money market. So can a bank that wants to invest money that depositors could withdraw at any time. Through the money markets, borrowers can find by turning assets into cash. They can also deal with irregular — in-coming and out-going of money — more cheaply than borrowing from a commercial bank. Similarly, investors can make short-term deposits with investment companies at interest rates: higher ones than they would get from a bank. Borrowers and lenders in the money markets use banks and whose business is trading such as stocks, bonds, short-term loans and debts, rather than lending money.
  
  Common money market instruments
  
  key words
  Treasury bills      ○      maturity      ○      discount      ○      nominal value      ○      redeemed      ○      Commercial paper      ○      unsecured      ○      Certificates of deposit      ○      debt instruments      ○      time deposits      ○      par value      ○      face value
  
  • (or T-bills) are bonds issued by governments. The most common — the length of time before a bond becomes repayable — is three months, although they can have a maturity of up to one year. T-bills in a country’s own currency are generally the safest possible investment. They are usually sold at a from their – the value written on them — rather than paying interest. For example, a T-bill can be sold at 99% of the value written on it, and or paid back at 100% at maturity, three months later.
  
  • is a short-term loan issued by major companies, also sold at a discount. It is , which means it is not guaranteed by the company’s assets.
  
  • (or CDs) are short- or medium-term, interest-paying — written promises to repay a debt. They are issued by banks to large depositors who can then trade them in the short-term money markets. They are known as , because the holder agrees to lend the money — by buying the certificate — for a specified amount of time.
  
  Note: Nominal value is also called or .
  
  Repos
  
  key words
  repurchase agreement      ○      dealer
  
  Another very common form of financial contract is a (or repo). A repo is a combination of two transactions, as shown below. The dealer hopes to find a long-term buyer for the securities before repurchasing them:
  
  A has unsold securities. → Dealer tries to find long-term buyer for securities.
        ↓
  Dealer sells securities, agreeing to repurchase them at a higher price on a fixed future date.
        ↓
  Short-term investor buys securities. Amount investor lends to dealer, by buying securities, is less than the market value of the securities. This is so investor avoids a loss if price of securities, and their value as collateral, falls.
        ↓
  Short-term investor sells securities back to dealer a few days or weeks later.
        ↓
  Dealer repurchases securities.
        ↓
  Dealer sells securities to long-term buyer.
Are the following statements true or false?
- Organizations use the money markets as an alternative to borrowing from banks. clue
  — A business or government that needs cash for a few weeks only can use money market.
  - true
  - false
- Money markets are a source of long-term finance. clue
  — Money markets are a source to borrow or invest short-term capital.
  - false
  - true
- All money market instruments pay interest. clue
  — T-bills are usually sold at a discount rather than paying interest. Commercial paper is also sold at a discount.
  - false
  - true
- Certificates of deposit are issued by major manufacturing companies. clue
  — Certificates of deposit are issued by banks.
  - false
  - true
- Commercial paper is guaranteed by the government. clue
  — Commercial paper is unsecured.
  - false
  - true
- Some money market instruments can have more than one owner before they mature. clue
  — Certificates of deposit are issued by banks to large depositors who can then trade them in the sort-term money markets.
  - true
  - false
Match the words in the box with the definitions below.
- box
  cash flow liquidity redeemed competitive maturity short-term discount par value unsecured
- : a price below the usual or advertised price
- : adjective describing a good price, compared to others on the market
- : the ability to sell an asset quickly for cash
- : (in finance) adjective meaning up to one year
- : adjective meaning with no guarantee or collateral
- : repaid
- : the length of time before a bond has to be repaid
- : the movement of money in and out of an organization
- : the price written on a security
Match the two parts of the sentences.
- Most money market securities . . .
  are short-term, liquid, safe, and sold at a discount.
  - are issued to holders of time deposits in a bank.
  - are short-term exchanges of cash for securities.
  - is guaranteed by the government.
  - is issued by corporations, so it is riskier than T-bills.
  - are short-term, liquid, safe, and sold at a discount.
- A treasure bill is safe because it . . .
  is guaranteed by the government.
  - are short-term, liquid, safe, and sold at a discount.
  - is guaranteed by the government.
  - is issued by corporations, so it is riskier than T-bills.
  - are short-term exchanges of cash for securities.
  - are issued to holders of time deposits in a bank.
- Commercial paper . . .
  is issued by corporations, so it is riskier than T-bills.
  - is guaranteed by the government.
  - are issued to holders of time deposits in a bank.
  - is issued by corporations, so it is riskier than T-bills.
  - are short-term exchanges of cash for securities.
  - are short-term, liquid, safe, and sold at a discount.
- Certificates of deposit (CDs) . . .
  are issued to holders of time deposits in a bank.
  - are issued to holders of time deposits in a bank.
  - is issued by corporations, so it is riskier than T-bills.
  - is guaranteed by the government.
  - are short-term exchanges of cash for securities.
  - are short-term, liquid, safe, and sold at a discount.
- Repurchase agreements (repos) . . .
  are short-term exchanges of cash for securities.
  - are short-term, liquid, safe, and sold at a discount.
  - are short-term exchanges of cash for securities.
  - is issued by corporations, so it is riskier than T-bills.
  - is guaranteed by the government.
  - are issued to holders of time deposits in a bank.

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