【正文】 nt profile, money market funds typically experience extremely low price risk. Investors for their part usually acquire checkwriting privileges with their funds and often use them as a close substitute for a bank account. This is feasible because the funds almost always maintain share value at $ and pass along all investment earnings to their investors as interest.ll see that the TED spread, the difference between the LIBOR rate and Treasury bills, also peaked during periods of financial stress.p. 33WORDS FROM THE STREETinshows that bank CDs, for example, consistently have paid a premium over Tbills. Moreover, that premium increased with economic crises such as the energy price shocks associated with the two OPEC disturbances, the failure of Penn Square bank, the stock market crash in 1987, the collapse of Long Term Capital Management in 1998, and the credit crisis beginning with the breakdown of the market in subprime mortgages beginning in 2007. If you look back to thus they will accept lower yields on securities such as Tbills that can be quickly and cheaply sold for cash.is the rate at which large banks in London are willing to lend money among themselves. This rate, which is quoted on dollar denominated loans, has bee the premier shortterm interest rate quoted in the European money market, and it serves as a reference rate for a wide range of transactions. For example, a corporation might borrow at a floating rate equal to LIBOR plus 2%. CallsIndividuals who buy stocks on margin borrow part of the funds to pay for the stocks from their broker. The broker in turn may borrow the funds from a bank, agreeing to repay the bank immediately (on call) if the bank requests it. The rate paid on such loans is usually about 1% higher than the rate on shortterm Tbills.The LIBOR MarketTheAt any time, some banks have more funds than required at the Fed. Other banks, primarily big banks in New York and other financial centers, tend to have a shortage of federal funds. In the federal funds market, banks with excess funds lend to those with a shortage. These loans, which are usually overnight transactions, are arranged at a rate of interest called the federal funds rate.orfederal funds,Funds in a bank39。s customers. Funds in the bank39。reverse repoterm repoalso called “repos” or “RPs,” as a form of shortterm, usually overnight, borrowing. The dealer sells government securities to an investor on an overnight basis, with an agreement to buy back those securities the next day at a slightly higher price. The increase in the price is the overnight interest. The dealer thus takes out a 1day loan from the investor, and the securities serve as collateral. maturity. A variation on the Eurodollar time deposit is the Eurodollar certificate of deposit. A Eurodollar CD resembles a domestic bank CD except that it is the liability of a . branch of a bank, typically a London branch. The advantage of Eurodollar CDs over Eurodollar time deposits is that the holder can sell the asset to realize its cash value before maturity. Eurodollar CDs are considered less liquid and riskier than domestic CDs, however, and thus offer higher yields. Firms also issue Eurodollar bonds, which are dollardenominated bonds outside the ., although bonds are not a money market investment because of their long maturities.Repos and ReversesDealers in government securities useare dollardenominated deposits at foreign banks or foreign branches of American banks. By locating outside the United States, these banks escape regulation by the Federal Reserve. Despite the tag “Euro,” these accounts need not be in European banks, although that is where the practice of accepting dollardenominated deposits outside the United States began. acceptances are considered very safe assets because traders can substitute the bank39。starts as an order to a bank by a bank39。banker39。issued by financial firms such as banks. This was shortterm mercial paper typically used to raise funds for the institution to invest in other assets. These assets were in turn used as collateral for the mercial paper—hence the label “asset backed.” This practice led to many difficulties starting in the summer of 2007 when the subprime mortgages in which the banks invested performed poorly as default rates spiked. The banks found themselves unable to issue new mercial paper to refinance their positions as the old paper matured.Bankers39。While most mercial paper is issued by nonfinancial firms, in recent years there was a sharp increase inCommercial paper is considered to be a fairly safe asset, because a firm39。Commercial paper maturities range up to 270 days。mercial unsecured debt issued by large corporations.or CD, is a time deposit with a bank. Time deposits may not be withdrawn on demand. The bank pays interest and principal to the depositor only at the end of the fixed term of the CD. CDs issued in denominations greater than $100,000 are usually negotiable, however。Certificates of DepositABoard of Governors of the Federal Reserve System, September 2009.Economic Report of the President,sthe bill for $10,000 [1 ? .0005 (36/360)] = $9,.s discount from its maturity or face value is “annualized” based on a 360day year, and then reported as a percentage of face value. For example, for the highlighted bill maturing on November 19, days to maturity are 36 and the yield under the column labeled “Asked” is given as %. This means that a dealer was willing to sell the bill at a discount from par value of % (36/360) = .0043%. So a bill with $10,000 par value could be purchased for $10,000 (1 ? .000043) = $9,. Similarly, on the basis of the bid yield of %, a dealer would be willing tobankdiscount method.Figure October 15, 2009.Treasury bill yieldsSource: Compiled from data obtained fromyieldFigure is the difference in these prices, which is the dealer39。bid–asked spreadThe difference between