Money market instruments

In this lesson

1. 0:00 Money market instruments overview
2. 1:15 Time apportionment and interest calculations
3. 2:30 Certificate of deposit worked example
4. 4:46 Discount instruments and yield calculation
5. 6:33 Commercial paper pricing example
6. 8:13 Capital markets vs money markets
7. 9:13 Introduction to derivative products

About this lesson

You'll work through practical examples including maturity values and yield calculations, and understand when these instruments are traded on money markets versus capital markets. This knowledge is directly relevant to FM and AFM papers where you'll need to value short-term financial instruments accurately. The session begins by distinguishing between interest-bearing instruments and those sold at a discount, explaining how each generates returns for investors. A key skill you'll master is time apportioning interest rates when instruments mature in less than a year—a critical exam technique where you multiply the annual coupon rate by the proportion of days held, remembering that UK instruments use 365 days and US instruments use 360 days. Through worked examples, you'll calculate maturity values for certificates of deposit and work backwards from redemption prices to determine issue prices for commercial paper. You'll also explore how to calculate annual yield percentages for discount instruments and distinguish between money market and capital market instruments based on their maturity periods. The session closes by introducing derivatives as a preview of products whose value derives from underlying assets like commodities, currencies, or bonds. By the end, you'll confidently handle money market calculations in exam conditions and understand where these instruments fit within the broader financial markets landscape.

Duration: 10m