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Types of Marketable Securities

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Lightbulb Types of Marketable Securities - June 14th, 2009

Commercial paper:
Commercial paper consists of short term unsecured promissory notes issued by finance companies and certain industrial concerns. Commercial paper can be sold either directly or through dealers. Many large scale companies have found it profitable because of the volume, to sell their papers directly to investors, thus bypassing dealers. Among companies selling papers on this basis are General Electric Credit Corporation and the Ford Motor Credit Company. Paper sold through dealers is issued by industrial companies and smaller finance companies. Dealers very carefully screen the creditworthiness of potential issuers. In a sense, dealers stand behind the paper they place with investors.


Rates on commercial paper are somewhat higher than rates on treasury bills of the maturity and about the same as the rates available on banker’s acceptance. Paper sold directly generally commands a lower yield than a paper sold through dealers. Usually, commercial papers are sold on discount basis, and maturity generally ranges from 30 -270 days. Most paper is held to maturity, for there is essentially no secondary market.0ften direct sellers of commercial papers will repurchase the paper on request… arrangements may also be made through dealers for repurchase of paper sold through them. Commercial paper is sold only in large denominations, usually $100,000.


Negotiable certificate of deposit:
A short term investment, the certificate (CD) is evidence of the deposit of funds at a commercial bank for a specified period of time and at a specified rate of interest. The most common denomination is $100,000, so its appeal is limited to large investors. Money market banks quote rates on CDs; these rates are changed periodically in keeping with changes in money market rates. Yields on CDs are greater than those on treasury bills and repose and about the same as those on banker’s acceptances and commercial paper. Original maturities of CDs generally range from 30-360 days. A good secondary market has developed for the CDs of the large money market banks; default risk is that of the bank rating. Like bankers acceptances, corporations buy domestic as well as CDs of large foreign banks. The latter is known as “YANKEE” CDs, and they typically carry a higher expected return.

Eurodollars:
Although most Eurodollars are deposited in Europe, the term applies to any dollar deposit in foreign banks or in foreign branches of U.S banks. There exists a substantial, very active market for deposit and leading of Eurodollars. This market is a wholesale one in that the amounts involved are at least $ 100000. Moreover the market is free of government regulations, as it is truly international scope.

The rates quoted on deposits vary according to the maturity of the deposit, while the rates on loans depend on maturity and default risk. For a given maturity, the leading rate always exceeds the deposit rate. The bank makes it money on the spread. The benchmark rate in this market is 6-month London interbrain offer rate. (LIBOR). This is the rate at which banks make loan to each other. All others borrowers are quoted rates in excess of this rate, such as LIBOR + 1\2 PERCENT.

As a marketable security, the Eurodollar time deposit is like a negotiable certificate of deposit. Most deposit have a maturity of, less than a year, and they can be sold in the market prior to maturity. Call money deposits are available, allowing investors to get their money back on demand, and there are 1-day (overnight) deposits. For the large corporation with ready contact with international money centers, the Eurodollar deposit usually is an important investment.


Short term municipals:
State and local governments are increasingly providing securities tailored to the short term investors. One is a commercial paper type of instrument, where the interest rates reset every week. That is, the security is essentially floating rate where the weekly reset ensures that market value ill vary scarcely at all. Some corporations invest in longer term municipal securities, but the maturity usually is kept within one or two years. A problem with longer term instruments designed for the corporate treasurer and for municipal market mutual funds have much better marketability and price stability.
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Re: Types of Marketable Securities
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Re: Types of Marketable Securities - June 26th, 2015

Meaning and Definition of Marketable Securities

Marketable securities are securities or debts that are to be sold or redeemed within a year. These are financial instruments that can be easily converted to cash such as government bonds, common stock or certificates of deposit.

Advantages of marketable securities

1) Relatively low risk stable investment
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