Debt Securities

Topics: Finance, Bank, Bond Pages: 2 (541 words) Published: February 12, 2013
Debt securities:

All debt securities represent a promise to pay a specific amount of money (the principal amount) to the holder of the security on a specific date (the maturity date). In exchange for investing in security the investor or holder of the security receives interest and the interest can be paid upon maturity of the security (as with most short term debt instruments) or in periodic instruments (as with most long term debt instruments). There are different types of debt securities as mentioned below: Money market instruments:

The market for debt securities of relatively short maturity (generally one year to less) is called money market. The money market gives a considerable amount of liquidity to all participants in financial market. Companies and government entities that find themselves temporarily short of cash can raise funds quickly by issuing money market instruments. Investors who have cash to invest for short periods of time can invest in money market instruments that will provide them with a return while not committing their funds for long periods.

Call money: The demand and time liabilities of a bank are evaluated every fortnight on a Friday called the reporting Friday. However, this procedure varies from one country to another country. Normally the banks are expected to maintain daily 15% of its Demand and time liabilities (as on the Reporting Friday) in cash with the central bank. This is known as cash reserve ratio and the banks are expected to maintain the balance in such a way that the average daily balances is within the stipulated requirement. The market that arises as a result of borrowing and lending by banks in order to maintain their CRR is known as the call market.

Certificates of deposit: A certificate of deposit is an instrument issued by a bank or other depository institution representing funds placed on deposit at the bank for a certain period of time and they are called as the negotiable certificates of deposit....
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