【正文】 on Treasury bills, and close to the negotiable CD rates offered by major banks, because of the high credit quality of the banks that issue the acceptances and CDs. ? 2020 by The McGrawHill Companies, Inc. All rights reserved. McGraw Hill / Irwin 11 25 Acceptance Rates Data Source: Board of Governors of the Federal Reserve System % 33 . 544 . 555 . 566 . 51991 1993 1995 1997 1999 2020C o m m e rci a l Pa p e rBa n ke rs 39。 terrorism ? 2020 by The McGrawHill Companies, Inc. All rights reserved. McGraw Hill / Irwin 11 10 Market Yields on Commercial Paper Data Source: Board of Governors of the Federal Reserve System 234567891991 1993 1995 1997 1999 2020F e d e ra l F u n d sC o m m e rci a l Pa p e rBa n ke rs 39。Money and Capital Markets 11 C h a p t e r Eighth Edition Financial Institutions and Instruments in a Global Marketplace Peter S. Rose McGraw Hill / Irwin Slides by YeeTien (Ted) Fu Money Market Instruments: Treasury Bills, Repurchase Agreements, Federal Funds, and Bank CDs ? 2020 by The McGrawHill Companies, Inc. All rights reserved. McGraw Hill / Irwin 11 2 Money and Capital Markets 12 C h a p t e r Eighth Edition Financial Institutions and Instruments in a Global Marketplace Peter S. Rose Slide by YeeTien (Ted) FuMoney Market Instruments: Commercial Paper, Federal Agency Securities, Bankers’ Acceptances, and Eurocurrency Deposits ? 2020 by The McGrawHill Companies, Inc. All rights reserved. McGraw Hill / Irwin 11 3 ? Learning Objectives ? ? To discover the important roles that large corporations, government agencies and banks play in the money market. ? To explore the nature and characteristics of mercial paper. ? To learn how federal agencies aid various economic sectors in finding lowcost credit. ? 2020 by The McGrawHill Companies, Inc. All rights reserved. McGraw Hill / Irwin 11 4 ? Learning Objectives ? ? To see the trend toward the internationalization of the money market, and examine how bankers’ acceptances and Eurodeposits are employed in aiding both domestic and international trade. ? To understand how the transfers of money from one spending unit to another across international boundaries can impact a nation’s economy. ? 2020 by The McGrawHill Companies, Inc. All rights reserved. McGraw Hill / Irwin 11 5 Commercial Paper ? Commercial paper consists of shortterm, unsecured promissory notes issued by wellknown and financially strong panies. ? Commercial paper is traded mainly in the primary market. Opportunities for resale in the secondary market are more limited. ? Commercial paper is rated prime, desirable, or satisfactory, depending on the credit standing of the issuing pany. ? 2020 by The McGrawHill Companies, Inc. All rights reserved. McGraw Hill / Irwin 11 6 Types of Commercial Paper ? There are two major types of mercial paper. ? Direct paper is issued mainly by large finance panies and bank holding panies directly to the investor. ? Dealer paper, or industrial paper, is issued by security dealers on behalf of their corporate customers (mainly nonfinancial panies and smaller financial panies). ? 2020 by The McGrawHill Companies, Inc. All rights reserved. McGraw Hill / Irwin 11 7 Structure of the Commercial Paper Market Investors in mercial paper Money market funds Banks Insurance panies Pension funds Industrial panies Other investors Demand Side Supply Side Issuers of mercial paper Finance panies Bank holding panies Nonfinancial firms Direct or finance paper Paper dealer houses Dealer or industrial paper ? 2020 by The McGrawHill Companies, Inc. All rights reserved. McGraw Hill / Irwin 11 8 Maturities amp。 Rate of Return ? Maturities of . mercial paper range from three days (“weekend paper”) to nine months. ? Most mercial paper is issued at a discount from par, and yields to the investor are calculated by the bank discount method, just like Treasury bills. DR = Par value – Purchase price ? 360 . Par value Days to maturity ? 2020 by The McGrawHill Companies, Inc. All rights reserved. McGraw Hill / Irwin 11 9 Growth of Commercial Paper ? The volume of mercial paper has grown rapidly due to its relatively low cost and high quality, as well as the expanding use of credit enhancements. 1960 $ billion 1970 1980 1990 2020 1, 2020 1, Year Outstanding Volume of Paper in the . Effect of weaker economy amp。 A cce p t a n ce sBa n k Pri m e L o a n sT re a s u ry Bi l l s% ? 2020 by The McGrawHill Companies, Inc. All rights reserved. McGraw Hill / Irwin 11 11 Commercial Paper Advantages ?Relatively low interest rates ?Flexible interest rates choice of dealer or direct paper ?Large amounts may be borrowed conveniently ?The ability to issue paper gives considerable leverage when negotiating with banks ? 2020 by The McGrawHill Companies, Inc. All rights reserved. McGraw Hill / Irwin 11 12 Commercial Paper Disadvantages ?Risk of alienating banks whose loans may be needed when an emergency develops ?May be difficult to raise funds in the paper market at times ?Commercial paper must generally remain outstanding until maturity does not permit early retirement without penalty ? 2020 by The McGrawHill Companies, Inc. All rights reserved. McGraw Hill / Irwin 11 13 Continuing Innovation in the Paper Market ? Innovations and extensions of the paper market include: ? Master note – the investing firm agrees to take some paper each day up to an agreedupon maximum amount ? Mediumterm notes – 9month to 10year notes ? Assetbacked mercial paper – loans or credit receivables are pooled and