Financial Instruments

Financial Instruments

Types of Money Market Instruments

The major purpose of financial markets is to transfer funds from lenders to borrowers. Financial market participants commonly distinguish between the “capital market” and the “money market”. The money market refers to borrowing and lending for periods of a year or less.

Treasury bills

Treasury bills are short-term securities issued by the U.S. Treasury. The Treasury sells bills at regularly scheduled auctions to refinance issues. It also helps to finance current federal deficits. They further sell bills on an irregular basis to smooth out the uneven flow of revenues from corporate and individual tax receipts.

Certificates of deposit 

A certificate of deposit is a document evidencing a time deposit placed with a depository institution.  The following information appears on the certificate:

  • the amount of the deposit;
  • the date on which it matures;
  • the interest rate; and
  • the method under which the interest is calculated.

Large negotiable CDs are generally issued in denominations of $1 million or more.

Commercial Paper 

Commercial paper is a short-term unsecured promissory note issued by corporations and foreign governments. It is a low-cost alternative to bank loans, for many large, credit worthy issuers. Issuers are able to efficiently raise large amounts of funds quickly and without expensive Securities and Exchange Commission (SEC) registration. They sell paper, either directly or through independent dealers, to a large and varied pool of institutional buyers. Investors in commercial paper earn competitive, market-determined yields in notes whose maturity and amounts can be tailored to their specific needs.

Bankers Acceptances/Letters of credit

A bankers acceptance, or BA, is a time draft drawn on and accepted by a bank. Before acceptance, the draft is merely an order by the drawer to the bank to pay a specified sum of money on a specified date to a named person or to the bearer of the draft, it is not an obligation of the bank. Upon acceptance, which occurs when an authorized bank employee stamps the draft “accepted” and signs it, the draft becomes a primary and unconditional liability of the bank. If the bank is well known and enjoys a good reputation, the accepted draft may be readily sold in an active market.


Eurodollars are bank deposit liabilities denominated in U.S. dollars. It’s not subject to U.S. banking regulations. For the most part, banks offering Eurodollar deposits are located outside the United States. However, since late 1981 non-U.S. residents have been able to conduct business free of U.S. banking regulations at International Banking Facilities (IBFs) in the United States.  Individuals, corporations, or governments from anywhere in the world may own Eurodeposits. The exception is that only non-U.S. residents can hold deposits at IBFs.

Repurchase Agreements (RPs) and Reverse RPs

The terms repurchase agreement (repo or RP) and reverse repurchase agreement refer to a type of transaction in which a money market participant acquires immediately available funds by selling securities and simultaneously agreeing to repurchase the same or similar securities after a specified time at a given price, which typically includes interest at an agreed-upon rate.  A transaction viewed from the perspective of the supplier of securities (the party acquiring funds) is called a repo, and it’s a reverse repo or matched sale-purchase agreement when described from the point of view of the supplier of funds.

Bank Guarantees

A Guarantee by Bank (banker’s guarantee) is a written undertaking wherein the bank agrees to make stipulated payments on your behalf should you fail to fulfil or carry out specified terms of a contract. Guarantees may also be issued in respect of the purchase of fixed property and against cash cover.

The bank’s liability is restricted to the payment of a sum of money and under no circumstances accepts responsibility for the completion of the customer’s contract.


  • Guarantees may be continuing or for a specified period – wherever possible a definite or determined expiry date or a clause specifying a period of notice or withdrawal is to be included in the guarantee.
  • The party in whose favour the guarantee is issued is entitled to specify the wording of the document. (At your request, the bank can draft the wording of the document)
  • Any demands for payment under a guarantee are to be made in writing.


  • You can avoid having to pay in advance or lodging cash cover to secure a purchase or contract thereby saving interest on your funds. If cash cover is lodged with the bank under pledge you will be paid interest on the investment.
  • Enables you to bid for contracts, which call for guarantees and to purchase fixed property where a guarantee is usually a prerequisite.


A bond is a debt security, similar to an I.O.U. You are lending money to a government, corporation, municipality, federal agency or other entity known as the issuer, when you purchase a bond.

In return for the loan, the issuer promises to repay the face value of the bond (the principal) when it “matures” or comes due and to pay you a specified rate of interest during the life of the bond.  You can choose among the following types of bonds:  U.S. government securities, corporate bonds, federal age securities, municipal bonds, mortgage and asset-backed securities and foreign government bond.

Corporate bonds

Corporate bonds (also called corporates) are debt obligations, or IOUs, issued by private and public corporations. They are typically issued in multiples of $1,000 and/or $5,000. The funds raised  by companies from selling bonds are used for a variety of purposes, from building facilities to purchasing equipment to expanding the business. When you buy a bond, you are lending money to the corporation that issued it, which promises to return your money, or principal, on a specified maturity date. Until that time, it also pays you a stated rate of interest, usually semi-annually. The interest payments you receive from corporate bonds are taxable. Unlike stocks, bonds do not give you an ownership interest in the issuing corporation.


The Money Market Instruments

Instrument Principal Borrowers
Discount Window Banks
Negotiable Certificates of Deposit (CDs) Banks
Eurodollar Time Deposits and CDs Banks
Repurchase Agreements Securities dealers, banks, non-financial corporations, governments (principal participants)
Treasury Bills U.S. government
Municipal Notes State and local governments
Commercial Paper Non-financial and financial businesses
Bankers Acceptances Non-financial and financial businesses
Government-Sponsored Enterprise Securities Farm Credit System, Federal Home Loan Bank System, Federal National Mortgage Association
Shares in Money Market Instruments Money market funds, local government investment pools, short-term investment funds
Futures Contracts Dealers, banks (principal users)
Futures Options Dealers, banks (principal users)
Swaps Banks (principal dealers)



Security Identifiers Screens

Bonds, Stocks and Financial Instruments, usually have one or more identifier codes, issued by various clearing houses or other agencies. The purpose of these identifiers is to prevent confusion when discussing a particular security, particularly a bond (because a company will usually only have one class of stock, but can have many different bond issues). This is a list of what the various securities codes stand for, who issues them, and what their structure is.


offers an on-line global analytical system that is useful for institutions buying or selling fixed income securities, equities, or foreign exchange.


No longer used; replaced by the Common Code on January 1, 1991.


CUSIP International Number. Nine digits. First digit is always a letter, which represents the country of issue. First six digits represent the issuer, next two represent the security, and the final digit is the check digit. The first digits codes are as follows: A=Austria, B=Belgium, C=Canada, D=Germany, E=Spain, F=France, G=Great Britain, H=Switzerland, J=Japan, K=Denmark, L=Luxembourg, M=Middle East, N = Netherlands P=South America, Q=Australia, R=Norway, S = South Africa, T=Italy, U=United States, V=Africa (Other), W = Sweden, X=Europe (Other), Y=Asia.

Common Code   

Issued in Luxembourg, replaces CEDEL and Euroclear codes. Nine digits. Final digit is a check digit, computed on a multiplicative system.


Stands for Committee on Uniform Securities Identification Procedures. Run by S&P, they assign a nine digit code to stocks and bonds. The first six digits identify the issuer. The next two digits represent the security that was issued, and the final digit is a check digit (uses modulus 10 double add double). First digit is always a number. This identifier is used for Canadian and U.S. securities only: other countries use CIN.


Not used any more; replaced by the Common Code on January 1, 1991.


International Securities Identification Number. This is a twelve digit code developed by the International Standards Organization that represents a security. The first two letters always represent the country code, and the ISO standards are used. Basically, these are the same two letters as used in internet addresses (but GB, not UK is used for Great Britain). The next nine characters use some other code usually, such as CUSIP in the United States, SEDOL in England, etc. Leading spaces are padded with 0. The final digit is the check digit, also computed with modulus 10 double add double, but it’s different from the method used in CUSIPs.


ISIDPlus covers all major national and international numbering systems,


Reuter Identification Code. Used on the Reuters Terminal to pull up a particular security. It’s a rather ugly looking thing with an equals sign in it somewhere. If the equal sign is that the end, that is a master RIC, whereas a RIC that follows with an equals sign and then some additional letters means that that is the price quoted by someone, symbolized by the letters following the equals sign.


Stock Exchange Daily Official List. British securities identification code. Has a built in check digit system.


Standard Industrial Code. Tells what line of business a firm is in, does not symbolize a security.


Security Identification Code Conference. Used in Japan, usually four digits. Sort of like a ticker in Japan.


Societe Interprofessional Pour La Compensation des Valeurs Mobiliers. Used in France.


Used in Belgium.


Identifier for Swiss securities. No check digit system.

Wertpapier Kenn  nummer     

Issued in Germany by the Wertpapier Mitteilungen. Six digits, no check digit. Different ranges of numbers represent different classes of securities. Sometimes called WPK. Note that this number has widespread use in Germany: much more so than the CUSIP in the United States, for instance.


See Wertpapier Kenn-Nummer.


See Wertpapier Kenn-Nummer.