SIE Ready💵 Debt Securities · Lesson 6 of 7 · 5 min
The Money Market: Short, Safe, Liquid
⏱️ Some debt lives for a night, some for a few months, none for more than about a year. That's the money market.
💡 Key idea
Short (about a year or less), high quality, usually discounted. CP is unsecured and ≤ 270 days; a repo is a sale plus a promised buyback.
🧠 Why it matters
Money market instruments are high-quality debt maturing in about a year or less, most sold at a discount. COMMERCIAL PAPER is unsecured short-term corporate debt; maturities up to 270 days keep it exempt from SEC registration. A BANKERS' ACCEPTANCE is a time draft a bank has guaranteed (accepted), used to finance imports and exports. NEGOTIABLE CDs are large bank CDs that can be sold to another investor before maturity instead of redeemed early; FDIC insurance covers up to $250,000 per depositor, per bank, per ownership category. In a REPURCHASE AGREEMENT (repo), a dealer sells securities and agrees to buy them back at a higher price, which is really a short secured loan. T-BILLS are the government's piece. FED FUNDS are overnight loans of reserves between banks.
📈 In the real world
🚢 Harbor Imports owes a supplier in Korea in 90 days. Its bank stamps 'accepted' on a time draft, guaranteeing payment. The supplier sells that bankers' acceptance at a discount to a money market fund rather than wait. The fund collects full face value at maturity.
📌 Takeaways
- Commercial paper: unsecured, discount, 270 days max to stay exempt
- Bankers' acceptances finance international trade
- Repo = sell now, buy back later at a higher price
📖 Terms in this lesson
Commercial paper: Short-term unsecured corporate debt; maturities of 270 days or less are exempt from 1933 Act registration.
Banker's acceptance: A short-term time draft guaranteed by a bank, commonly used to finance imports and exports.
Negotiable CD: A large bank certificate of deposit that can be sold to another investor before it matures.
Repurchase agreement (repo): A sale of securities with an agreement to buy them back later at a higher price, in effect a short-term secured loan.
✅ Test yourself
Commercial paper is generally exempt from registration under the Securities Act of 1933 when its maturity is:
- 180 days or less
- 270 days or less
- 5 years or less
- 365 days or less
Answer: B · 270 days or less
Short-term notes for current transactions maturing in no more than nine months (270 days) qualify for the exemption. 365 days is the outer edge of the money market, not the CP limit.
Which money market instrument is most closely tied to financing imports and exports?
- Bankers' acceptance
- Commercial paper
- Fed funds
- Negotiable CD
Answer: A · Bankers' acceptance
A bankers' acceptance is a bank-guaranteed time draft used in international trade. Commercial paper funds general short-term corporate needs, and fed funds are interbank loans.
A dealer sells Treasury securities to an investor and agrees to buy them back tomorrow at a slightly higher price. This is a:
- Bankers' acceptance
- Repurchase agreement
- Short sale
- Treasury auction
Answer: B · Repurchase agreement
In a repo the dealer effectively borrows cash, using the securities as collateral; the price difference is the interest. A short sale involves borrowed securities, not a buyback agreement.
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