Cash instruments are basically financial instruments. There are different kinds of cash instruments available in the money market. These are certificates of deposits, repurchase agreements, that is, the Repos, bills of exchange, interbank loans, commercial papers.
Unlike the interbank deposits, the certificates of deposits (CD), commercial papers and federal saving bonds are negotiable instruments., that is, they can be traded in the secondary market before the end of the whole term.
Certificates of Deposit:
It is more advantageous than the normal savings. CD documents the issuing of a deposit at a given rate of interest for a particular term. So, the borrower has to pay a particular amount of capital, which was agreed by the two parties, with interest to the owner on the date of maturity.
CDs originally came from the US money market. In the Euro market, certificates of deposits are related to common interbank deposits or loans.
Commercial Paper (CP):
These are basically short-term bonds. The issuer of a CP has to pay the capital with the interest to bearer at maturity. For the companies, commercial papers act as "securitization", that is, they can borrow without using their bank deposits. Mainly, the investment banks issue the commercial papers.
These are short-term debts, maximum for one year, which are usually issued within an auction framework. The liquidity of the treasury bills is very high, that is why it is a very important cash instrument in the money market. The treasury bills do not have a fixed rate of interest, therefore it is called discount instrument.
Last Updated on : 1st August 2013