Federal funds, also known as fed funds are reserves that banks hold in their Federal Reserve Bank account. These fed funds need to be maintained as per the Regulation D reserve requirement. Banks having excess fed funds above the requirement can lend to other financial institutions having account at a Federal Reserve Bank. The common […]
Key Financial Instruments
Federal Funds: Pricing and Risks
Fed fund yields are quoted on an add-on basis on an actual/360-day basis. The fed funds rate is a key rate for the money market. Bid/offer spreads may vary among institutions, although the differences are usually slight. The Wall Street Journal publishes the fed effective rate on overnight fed funds, which is the weighted average […]
US Treasury STRIPS
STRIPS is the acronym for “Separate Trading of Registered Interest and Principal Securities”. These are zero-coupon securities (zeros) of the U.S. Treasury created by physically separating the principal and interest cash flows. The process of stripping is known as coupon stripping. All new Treasury bonds and notes with maturities of 10 years and longer are […]
US Treasury STRIPS: Pricing and Risks
The prices of STRIPS are quoted on a discount basis, as a percentage of par. Eligible securities can be stripped at any time. For a book-entry security to be separated into its component parts, the par value must be an amount which, based on the stated interest rate, will produce a semiannual interest payment of […]
Treasury Inflation-Indexed Securities
Treasury inflation-indexed securities (TIIs) are issued by the US Treasury Department and represent direct obligations of the U.S. government. The key feature of these securities is that they provide investors protection against the rise in inflation. Since they are backed by the full faith and credit of the government, there is minimal credit risk. The […]
US Treasury Bills, Notes and Bonds
U.S. Treasury bills, notes, and bonds, together known as “Treasuries”, are issued by the Treasury Department and represent direct obligations of the U.S. government. Treasuries are backed by the full faith and credit of the U.S. government, and have very little credit risk. They issued in various maturities of up to 10 years. Characteristics Treasury […]
Brady Bonds
In 1989, the Brady plan, named after then-U.S. Treasury Secretary Nicholas Brady, was announced to restructure much of the debt of developing countries that was not being fully serviced due to economic constraints. The plan provided debt relief to troubled countries and, in theory, opened access to further international financing. It also provided the legal […]
Eurodollar Certificates of Deposit (CD)
Eurodollar certificate of deposit, or just Eurodollar CD, is a negotiable dollar-denominated time deposit issued by a U.S. bank located outside the US or by a foreign bank located abroad. It’s the same thing as a domestic CD expect that it’s the liability of a non-US bank. Eurodollars also include dollars deposited in international banking […]