Chapter 6Money Market Instruments

Frank J. Fabozzi, Ph.D., CFA

Adjunct Professor of Finance School of Management Yale University

Steven V. Mann, Ph.D.

Professor of Finance The Moore School of Business University of South Carolina

Moorad Choudhry

Senior Fellow Centre for Mathematical Trading and Finance City University Business School

The money market is the market for financial instruments that have a maturity of one year or less. The financial instruments traded in this market include securities issued by the U.S. Department of the Treasury (specifically, Treasury bills), U.S. federal agency securities (discount note and various “bill” products), depository institutions (negotiable certificates of deposit, federal funds, and bankers acceptances), insurance companies (funding agreements), commercial paper, medium-term notes, repurchase agreements, short-term municipal securities, short-term mortgage-backed securities, and asset-backed securities. In this chapter we cover all but the last three financial instruments.


The U.S. Treasury is the largest single borrower in the world. Treasury bills are short-term discount instruments with original maturities of less than one year. All Treasury securities are backed by the full faith and credit of the U.S. government. This fact, combined with their volume (in terms of dollars outstanding) and liquidity, afford Treasury bills a central place in the money market. Indeed, interest rates on Treasury bills serve as ...

Get The Handbook of Financial Instruments now with the O’Reilly learning platform.

O’Reilly members experience live online training, plus books, videos, and digital content from nearly 200 publishers.