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FLUCTUATION OF MONEY MARKET

A ProjectOn

Study of Fluctuation of Money MarketUnder the guidance Of

_________________________Submitted by

Priyanka SawantRoll No.30

__________________________

in partial fulfillment o f the requirementfor the award of the degreeOfMASTEROFBUSINESSADMINISTRATION

in Finance.

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Acknowledgement

Firstly I would like to thank NDPL for giving the opportunity to complete my projectin the organization. I put on record my sincere thanks to Mahender sir for hissuggestions and advice. I am extremely grateful to Mamta madam for theencouragement, discussions and critical assessment of the project.

It was a good experience for me to work with North Delhi Power Limited, a pioneerin the field of power distribution. I am greatly obliged to Ms. Pooja and Mr. VineetKumar who have shared their expertise and knowledge with me without which thecompletion of project would not have been possible

INDEX

1. INTRODUCTION OF MONEY MARKET

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2. HISTORY3. PARTICIPANT4. FLUCTUATION OF MONEY MARKET

5. FUNCTIONS OF MONEY MARKET6. MONEY MARKET INSTRUMENT7. DISCOUNT AND ACCRUAL

INSTRUMENT8. INTRODUCTION OF MONEY MARKET

MUTUAL FUND9. PERPOSE OF MONEY MARKET

MUTUAL FUND FOR INVESTORS10. ADVANTAGES OF FLUCTUATION INMONEY MARKET

11. DISADVANTAGES OF FLUCTUATION INMONEY MARKET

12. HOW TO UNDERSTAND MONEYMARKET FLUCTUATION

13. MARKET FLUCTUATION FRIEND ORENEMY

14. TIPS ON MAXIMIZING OPPORTUNITIESIN FLUCTUATING MARKET

15. MONEY MARKET FUND16. CONCLUSION

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INTRODUCTION OF MONEY

MARKET

As money became a commodity, the money market became a component of the financial

markets for assets involved in short-termborrowing, lending, buying and selling with original

maturities of one year or less. Trading in the money markets is done over the counterand is

wholesale. Various instruments exist, such as Treasury bills,commercial paper,bankers'

acceptances, deposits, certificates of deposit,bills of exchange,repurchase agreements, federal

funds, and short-livedmortgage-, and asset-backed securities. It provides liquidity funding for

the global financial system. Money markets and capital markets are parts offinancial markets.

The instruments bear differing maturities, currencies, credit risks, and structure. Therefore they

may be used to distribute the exposure.

The money market is a component of the financial markets for assets involved in short-term

borrowing and lending with original maturities of one year or shorter time frames. Trading in

the money markets involvesTreasury bills, commercial paper,bankers' acceptances, certificates

of deposit, federal funds, and short-livedmortgage- and asset-backed securities.[1] It provides

liquidity funding for the global financial system.

The money market consists offinancial institutions and dealers in money or credit who wish toeither borrow or lend. Participants borrow and lend for short periods of time, typically up tothirteen months. Money market trades in short-term financial instruments commonly called

"paper." This contrasts with the capital marketfor longer-term funding, which is supplied bybonds andequity.

The core of the money market consists ofinterbank lending--banks borrowing and lending toeach other using commercial paper, repurchase agreements and similar instruments. Theseinstruments are often benchmarked to (i.e. priced by reference to) the London Interbank OfferedRate (LIBOR) for the appropriate term and currency.

. commercial paper(ABCP) which is secured by thepledge of eligible assets into an ABCPconduit. Examples of eligible assets include auto loans, credit card receivables,

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http://en.wikipedia.org/wiki/Financial_markethttp://en.wikipedia.org/wiki/Financial_markethttp://en.wikipedia.org/wiki/Debthttp://en.wikipedia.org/wiki/Loanhttp://en.wikipedia.org/wiki/Over-the-counter_(finance)http://en.wikipedia.org/wiki/Treasury_security#Treasury_billhttp://en.wikipedia.org/wiki/Commercial_paperhttp://en.wikipedia.org/wiki/Commercial_paperhttp://en.wikipedia.org/wiki/Bankers'_acceptancehttp://en.wikipedia.org/wiki/Bankers'_acceptancehttp://en.wikipedia.org/wiki/Deposit_(finance)http://en.wikipedia.org/wiki/Certificate_of_deposithttp://en.wikipedia.org/wiki/Bill_of_exchangehttp://en.wikipedia.org/wiki/Bill_of_exchangehttp://en.wikipedia.org/wiki/Repurchase_agreementhttp://en.wikipedia.org/wiki/Repurchase_agreementhttp://en.wikipedia.org/wiki/Mortgage-backed_securityhttp://en.wikipedia.org/wiki/Mortgage-backed_securityhttp://en.wikipedia.org/wiki/Market_liquidityhttp://en.wikipedia.org/wiki/Global_financial_systemhttp://en.wikipedia.org/wiki/Capital_marketshttp://en.wikipedia.org/wiki/Financial_marketshttp://en.wikipedia.org/wiki/Financial_markethttp://en.wikipedia.org/wiki/Treasury_security#Treasury_billhttp://en.wikipedia.org/wiki/Treasury_security#Treasury_billhttp://en.wikipedia.org/wiki/Commercial_paperhttp://en.wikipedia.org/wiki/Bankers'_acceptancehttp://en.wikipedia.org/wiki/Mortgage-backed_securityhttp://en.wikipedia.org/wiki/Mortgage-backed_securityhttp://en.wikipedia.org/wiki/Asset-backed_securityhttp://en.wikipedia.org/wiki/Money_market#cite_note-0http://en.wikipedia.org/wiki/Market_liquidityhttp://en.wikipedia.org/wiki/Global_financial_systemhttp://en.wikipedia.org/wiki/Financial_institutionhttp://en.wikipedia.org/wiki/Financial_instrumenthttp://en.wikipedia.org/wiki/Capital_markethttp://en.wikipedia.org/wiki/Capital_markethttp://en.wikipedia.org/wiki/Bond_(finance)http://en.wikipedia.org/wiki/Stockhttp://en.wikipedia.org/wiki/Stockhttp://en.wikipedia.org/wiki/Interbank_lending_markethttp://en.wikipedia.org/wiki/Commercial_paperhttp://en.wikipedia.org/wiki/Repurchase_agreementhttp://en.wikipedia.org/wiki/London_Interbank_Offered_Ratehttp://en.wikipedia.org/wiki/London_Interbank_Offered_Ratehttp://en.wikipedia.org/wiki/Commercial_paperhttp://en.wikipedia.org/wiki/Pledge_(law)http://en.wikipedia.org/wiki/Debthttp://en.wikipedia.org/wiki/Loanhttp://en.wikipedia.org/wiki/Over-the-counter_(finance)http://en.wikipedia.org/wiki/Treasury_security#Treasury_billhttp://en.wikipedia.org/wiki/Commercial_paperhttp://en.wikipedia.org/wiki/Bankers'_acceptancehttp://en.wikipedia.org/wiki/Bankers'_acceptancehttp://en.wikipedia.org/wiki/Deposit_(finance)http://en.wikipedia.org/wiki/Certificate_of_deposithttp://en.wikipedia.org/wiki/Bill_of_exchangehttp://en.wikipedia.org/wiki/Repurchase_agreementhttp://en.wikipedia.org/wiki/Mortgage-backed_securityhttp://en.wikipedia.org/wiki/Market_liquidityhttp://en.wikipedia.org/wiki/Global_financial_systemhttp://en.wikipedia.org/wiki/Capital_marketshttp://en.wikipedia.org/wiki/Financial_marketshttp://en.wikipedia.org/wiki/Financial_markethttp://en.wikipedia.org/wiki/Treasury_security#Treasury_billhttp://en.wikipedia.org/wiki/Commercial_paperhttp://en.wikipedia.org/wiki/Bankers'_acceptancehttp://en.wikipedia.org/wiki/Mortgage-backed_securityhttp://en.wikipedia.org/wiki/Asset-backed_securityhttp://en.wikipedia.org/wiki/Money_market#cite_note-0http://en.wikipedia.org/wiki/Market_liquidityhttp://en.wikipedia.org/wiki/Global_financial_systemhttp://en.wikipedia.org/wiki/Financial_institutionhttp://en.wikipedia.org/wiki/Financial_instrumenthttp://en.wikipedia.org/wiki/Capital_markethttp://en.wikipedia.org/wiki/Bond_(finance)http://en.wikipedia.org/wiki/Stockhttp://en.wikipedia.org/wiki/Interbank_lending_markethttp://en.wikipedia.org/wiki/Commercial_paperhttp://en.wikipedia.org/wiki/Repurchase_agreementhttp://en.wikipedia.org/wiki/London_Interbank_Offered_Ratehttp://en.wikipedia.org/wiki/London_Interbank_Offered_Ratehttp://en.wikipedia.org/wiki/Commercial_paperhttp://en.wikipedia.org/wiki/Pledge_(law)http://en.wikipedia.org/wiki/Financial_markethttp://en.wikipedia.org/wiki/Financial_market


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residential/commercial mortgage loans, mortgage-backed securities and similar financial assets.Certain large corporations with strong credit ratings, such as General Electric, issue commercialpaper on their own credit. Other large corporations arrange for banks to issue commercial paperon their behalf via commercial paper lines.

In the United States, federal, state and local governments all issue paper to meet funding needs.States and local governments issue municipal paper, while the US Treasury issues Treasury billsto fund theUS public debt.

Trading companies often purchasebankers' acceptances to be tendered for payment to

overseas suppliers. Retail and institutional money market funds

Banks

Central banks

Cash management programs

Arbitrage ABCP conduits, which seek to buy higher yielding paper, while themselves

selling cheaper paper.

Merchant Banks

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HISTORY

In 1971, Bruce R. Bent and Henry B. R. Brown established the first money market fund in theU.S.[3] It was named The Reserve Fund and was offered to investors who were interested inpreserving their cash and earning a small rate of return. Several more funds were shortly set upand the market grew significantly over the next few years.

Money market funds in the US created a loophole around Regulation Q,[4] and they can be seenas a substitute for banks.

Outside of the U.S., the first money market fund was set up in 1968 and was designed for smallinvestors. The fund was called Conta Garantia and was created by John Oswin Schroy. Thefund's investments included low denominations of commercial paper.

In the 1990s, bank interest rates in Japan were near zero for an extend period of time. To searchfor higher yields from these low rates in bank deposits, investors used money market funds forshort-term deposits instead. However, several money market funds fell off short of their stable

value in 2001 due to the Enron bankruptcy, in which several Japanese funds had invested, andinvestors fled into government-insured bank accounts. Since then the total value of moneymarkets have remained low.[4]

Money market funds in Europe have always had much lower levels of investments capital thanin the United States or Japan. Regulations in the EU have always encouraged investors to usebanks rather than money market funds for short term deposits.[4]

Money market funds seek a stable net asset value, or NAV (which is generally $1.00 in the US);they aim never to lose money. If a fund's NAV drops below $1.00, it is said that the fund "brokethe buck".

This has rarely happened; however, as of September 16, 2008, two money funds have brokenthe buck (in the 37-year history of money funds) and from 1971 to September 15, 2008, therewas only one failure.

It is important to note that, while the funds are managed in a fairly safe manner, there wouldhave been many more failures except that the companies offering the money market funds had,in the past, stepped in when necessary to support the fund and avoid having the funds "break the

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http://en.wikipedia.org/wiki/Bruce_R._Benthttp://en.wikipedia.org/wiki/Henry_B._R._Brownhttp://en.wikipedia.org/wiki/Money_market_fund#cite_note-2http://www.ther.com/http://en.wikipedia.org/wiki/Regulation_Qhttp://en.wikipedia.org/wiki/Money_market_fund#cite_note-IMFOct2010-3http://en.wikipedia.org/wiki/Money_market_fund#cite_note-IMFOct2010-3http://www.capital-flow-analysis.info/investment-tutorial/case_1k.htmlhttp://en.wikipedia.org/wiki/Lost_Decade_(Japan)http://en.wikipedia.org/wiki/Enron_scandalhttp://en.wikipedia.org/wiki/Money_market_fund#cite_note-IMFOct2010-3http://en.wikipedia.org/wiki/European_Unionhttp://en.wikipedia.org/wiki/Money_market_fund#cite_note-IMFOct2010-3http://en.wikipedia.org/wiki/Net_asset_valuehttp://en.wikipedia.org/wiki/Bruce_R._Benthttp://en.wikipedia.org/wiki/Henry_B._R._Brownhttp://en.wikipedia.org/wiki/Money_market_fund#cite_note-2http://www.ther.com/http://en.wikipedia.org/wiki/Regulation_Qhttp://en.wikipedia.org/wiki/Money_market_fund#cite_note-IMFOct2010-3http://www.capital-flow-analysis.info/investment-tutorial/case_1k.htmlhttp://en.wikipedia.org/wiki/Lost_Decade_(Japan)http://en.wikipedia.org/wiki/Enron_scandalhttp://en.wikipedia.org/wiki/Money_market_fund#cite_note-IMFOct2010-3http://en.wikipedia.org/wiki/European_Unionhttp://en.wikipedia.org/wiki/Money_market_fund#cite_note-IMFOct2010-3http://en.wikipedia.org/wiki/Net_asset_value


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buck". This was done because the expected cost to the business from allowing the fund value todrop -- in lost customers and reputation -- was greater than the amount needed to bail it out. [5]

The Community Bankers US Government Fund broke the buck in 1994, paying investors 96cents per share. This was the first failure in the then 23-year history of money funds and there

were no further failures for 14 years. The fund had invested a large percentage of its assets intoadjustable rate securities. As interest rates increased, these floating rate securities lost value.This fund was an institutional money fund, not a retail money fund, thus individuals were notdirectly affected.

PARTICIPANT

Finance companies typically fund themselves by issuing large amounts ofasset-backedcommercial paper(ABCP) which is secured by thepledge of eligible assets into an ABCPconduit. Examples of eligible assets include auto loans, credit card receivables,residential/commercial mortgage loans, mortgage-backed securities and similar financial assets.

Certain large corporations with strong credit ratings, such as General Electric, issue commercialpaper on their own credit. Other large corporations arrange for banks to issue commercial paperon their behalf via commercial paper lines.

In the United States, federal, state and local governments all issue paper to meet funding needs.States and local governments issue municipal paper, while the US Treasury issues Treasury billsto fund theUS public debt:

FUNCTIONS OF MONEY MARKET

The money market functions are: [5][6]

Transfer of large sums of money

Transfer from parties with surplus funds to parties with a deficit

Allow governments to raise funds

Help to implement monetary policy

Determine short-term interest rates

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http://en.wikipedia.org/wiki/Money_market_fund#cite_note-4http://en.wikipedia.org/wiki/Money_market_fund#Institutional_money_fundhttp://en.wikipedia.org/wiki/Money_market_fund#Retail_money_fundhttp://en.wikipedia.org/wiki/Asset-backed_commercial_paperhttp://en.wikipedia.org/wiki/Asset-backed_commercial_paperhttp://en.wikipedia.org/wiki/Pledge_(law)http://en.wikipedia.org/wiki/Mortgage-backed_securityhttp://en.wikipedia.org/wiki/Credit_ratinghttp://en.wikipedia.org/wiki/General_Electrichttp://en.wikipedia.org/wiki/Municipal_bondhttp://en.wikipedia.org/wiki/US_Treasuryhttp://en.wikipedia.org/wiki/Treasury_security#Treasury_billhttp://en.wikipedia.org/wiki/United_States_public_debthttp://en.wikipedia.org/wiki/United_States_public_debthttp://en.wikipedia.org/wiki/Money_market#cite_note-5http://en.wikipedia.org/wiki/Money_market#cite_note-6http://en.wikipedia.org/wiki/Money_market_fund#cite_note-4http://en.wikipedia.org/wiki/Money_market_fund#Institutional_money_fundhttp://en.wikipedia.org/wiki/Money_market_fund#Retail_money_fundhttp://en.wikipedia.org/wiki/Asset-backed_commercial_paperhttp://en.wikipedia.org/wiki/Asset-backed_commercial_paperhttp://en.wikipedia.org/wiki/Pledge_(law)http://en.wikipedia.org/wiki/Mortgage-backed_securityhttp://en.wikipedia.org/wiki/Credit_ratinghttp://en.wikipedia.org/wiki/General_Electrichttp://en.wikipedia.org/wiki/Municipal_bondhttp://en.wikipedia.org/wiki/US_Treasuryhttp://en.wikipedia.org/wiki/Treasury_security#Treasury_billhttp://en.wikipedia.org/wiki/United_States_public_debthttp://en.wikipedia.org/wiki/Money_market#cite_note-5http://en.wikipedia.org/wiki/Money_market#cite_note-6


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FIUCTUATION OF MONEY MARKET

The money market can be volatile and unpredictable at times, and even seasoned stock marketprofessionals can be caught off guard by sudden shifts. Individual stocks and entire stockexchanges can gain or lose significant value in short periods in addition to showing long-termtrends. Knowing how to understand money market fluctuations can help you to stay ahead ofcurve in your trading activities.

HOW TO UNDERSTAND THE MARKET FLUCTUATION

Step 1

Keep an eye on the macroeconomic environment. Watch for macroeconomic events that cantrigger fluctuations in individual sectors or the market as a whole. Watch for increased consumersavings rates due to increased unemployment, for example, which can strangle demand forthings like expensive entertainment products, putting many companies' earnings at risk. A creditboom, on the other hand, is likely to give a boost to industries such as construction andautomobiles.

Step 2

Watch for news stories on individual companies and industries. Expect active traders to reactswiftly to news releases. A massive deep-water oil spill, for example, can cause an otherwisestrong oil company's stock to take a quick dive, just as the discovery of a new oil deposit can

give its stock a boost.The news can also help you to spot new products and industries that threaten establishedpowerhouses. The rise of the cellphone industry, for example, caused traditional telephonecompanies' stock to fall so steeply that most players either failed or jumped into the cellularspace.

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Step 3

Keep an eye on the legal environment. Watch for new laws and regulations, as well as ordersfrom regulatory agencies, that can make or break companies and products. Pharmaceuticalcompanies, for example, experience fluctuations in stock price when the Food and DrugAdministration either approves or denies a new drug for sale.

Step 4Understand emotional theory in the stock market. Economics textbooks teach you a wide rangeof financial decision-making models that apply to stock market investing, all of which rely uponthe assumption that all traders act rationally after analyzing all pertinent information. In the realworld, however, this is not always the case. Emotional theory asserts that investors do notalways act rationally. Traders can unknowingly place more emphasis on recent news than oldernews, for example, or they can react to quick stock movements without seeking and processingall available information.

Step 5

Analyze and compare financial statements. Stock investors use companies' financial statementsto assess their strength and performance compared to other players in their industry and thecompany's own previous data. As an example, analyzing a company's financial statements mayreveal that their debt-to-earnings ratio has increased significantly over last year's figure, whichcan help to explain why the company's stock price fell after the annual report was released, eventhough top-line earnings increased for the year.

MONEY

Stock-market fluctuations a necessary risk

If you are saving for retirement and find that you are glued to the radio or TV when the stockmarket is experiencing wild and volatile movements, you may find yourself asking "why am Itaking a risk by investing and not just saving in a bank account or a GIC?"

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It is at times like 2001 and 2009 when we saw huge shifts of capital move from the stock marketto the safety of GIC's that cement our understanding that fear of losing far outweighs our desireto gain.

The reason we invest is because we know we have to save for retirement and, in many cases, we

need a decent return on our savings to achieve our goals. There were times when interest rateswere so high that we could easily reach our targets with a GIC or savings account, but the daysof double-digit interest rates are far behind us and they may not return for the foreseeable future.

Right now, you are lucky to get a savings rate of about 1.65%, and locking your money up forfive years in a GIC can get you about 2.5% per year. These historically low rates really hit homewhen you go on the Bank of Canada website and see that they aim to keep inflation between 1%and 3%.

Let's face it, $50,000 a year today is not what it used to be and, in the future, it won't be what itis today. According to the "Rule of 72" a 3% inflation rate means that your costs of living willdouble every 24 years (72 divided by 3 is 24).

With 3% inflation, $50,000 today has the same purchasing power of $25,000 24 years ago and,if you are retiring in 24 years with the same inflation rate, you will need $100,000 per year togenerate what $50,000 would buy today.

While inflation is relatively low at this time, we are constantly reminded by the Bank of Canadathat it will become a significant factor down the road and interest rates will subsequently rise. Ifyour savings target requires a return that is not keeping up with or beating inflation, then youmay need to take on more risk and get used to the ups and downs of the stock market.

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Global

financial stability is at risk as central banks draw back from ultra-easy policies that have flooded

the world with cash, because emerging markets lack defenses to prevent potentially huge capital

outflows, top officials were warned yesterday.

Central bankers from around the world, devoting the second day at their annual Jackson Hole

policy retreat to the threats posed by global liquidity, heard two academic papers on the

challenges, sparking a debate on actions and on coordination.Bank of Japan Governor Haruhiko Kuroda (pic) told the audience, which included top officials

from advanced as well as emerging economies, that the bold measures he had championed to

spur his nation's moribund economy were bearing fruit.

"The bank's (policy) has already started to exert its intended effects," Kuroda said. The Bank of

Japan has embarked on an aggressive bond-buying campaign to lift inflation in his country to

2%.

Easy money policies used to depress interest rates in Japan, Europe and The United States had

sparked a flood of capital into emerging markets as investors sought higher returns.

Now, however, the US Federal Reserve has said it plans to reduce its bond-buying stimulus by

year end, with an eye toward drawing it to a close by mid-2014.

Federal Reserve Bank of Atlanta President Dennis Lockhart made clear that tapering could

begin next month, provided the economic news between now and then was not dramatically bad.

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"I can get comfortable with September, providing we don't get any really worrisome signals out

of the economy between now and the 18th of September," he told Reuters in an interview,

referring to the Fed's next meeting, which is on September 17-18.

Concerns over Fed tapering has sparked an exodus of cash from emerging markets, including

India and Brazil, whose currencies and stock markets suffered steep losses this week.

"Amplifications, feedback loops and sensitivity to risk perceptions will complicate the task of

exit and necessitate very close and constant dialogue and cooperation between central banks,"

Jean-Pierre Landau, a former deputy governor of the Bank of France, warned in his presentation.

Net positive

Turkish Central Bank Governor Erdem Basci attended the conference, but his Brazilian

counterpart, Alexandre Tombini, canceled in order to stay home and deal with the crisis.

Tombini was replaced in Jackson Hole by his deputy, Luiz Pereira, who argued that a tapering

of the Fed's bond purchases might actually be a net benefit for emerging economies if it signaled

that the US economy was picking up steam.

A stronger United States should spell stronger demand for exports from emerging economies,

including Brazil.

Landau argued that central banks in advanced economies had cooperated successfully during the

2007-2009 financial crisis, when they coordinated on interest rates cuts and set up currency

swap lines. As a result, they could do so again in the future with an eye toward moderating the

spillovers from their actions.

But, he acknowledged it would be difficult to get agreement to subordinate national priorities in

advance, a point echoed by others.

"How much should domestic monetary policy restrain itself for the stability of global

(conditions)?" asked Allan Meltzer, a Fed historian and professor at Carnegie Mellon

University.

"That's a fundamental problem for monetary policy."

Lockhart said the Fed had a legal obligation to focus on domestic US goals, but allowed that

there could be circumstances when the international impact of its actions could be taken into

account.

"If a policy maker in The United States believed that the global consequences of taking a

domestic action would spill back over into the US economy in a very negative way, that clearly

is within the scope of consideration," he said in the interview.

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There was also discussion about the need for emerging market nations to develop tools to

control credit flows. Without such tools, these countries could lose the ability to control

domestic financial conditions with monetary policy.

But Terrence Checki of the New York Fed cautioned that monetary policy may not be the best

way to deal with financial excesses, and others said domestic priorities should not besubordinated to international obligations.

Don Kohn, a former Fed Vice Chairman and a candidate for the top job when Fed Chair Ben

Bernanke's term ends in January, countered the claim that monetary policy might be too loose

globally, citing elevated jobless rates in rich countries.

"One of the ways that monetary policy of the United States was transmitted was by resistance to

exchange rate appreciation in other countries," he said, voicing a familiar Fed argument that

emerging economies could better absorb easy US policy if they allowed their own exchange

rates to fluctuate. - AFP, August 25, 2013.

MONEY MARKET INSTRUMENT

Certificate of deposit - Time deposits, commonly offered to consumers by banks, thrift

institutions, and credit unions. Repurchase agreements - Short-term loansnormally for less than two weeks and

frequently for one dayarranged by selling securities to an investor with an agreementto repurchase them at a fixed price on a fixed date.

Commercial paper- Unsecured promissory notes with a fixed maturity of one to 270

days; usually sold at a discount from face value.

Eurodollar deposit - Deposits made in U.S. dollars at a bank or bank branch located

outside the United States.

Federal agency short-term securities - (in the U.S.). Short-term securities issued by

government sponsored enterprises such as the Farm Credit System, theFederal HomeLoan Banks and the Federal National Mortgage Association.

Federal funds - (in the U.S.). Interest-bearing deposits held by banks and other

depository institutions at the Federal Reserve; these are immediately available funds thatinstitutions borrow or lend, usually on an overnight basis. They are lent for the federalfunds rate.

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Municipal notes - (in the U.S.). Short-term notes issued by municipalities in anticipation

of tax receipts or other revenues.

Treasury bills - Short-term debt obligations of a national government that are issued to

mature in three to twelve months. For the U.S., see Treasury bills.

Money funds - Pooled short maturity, high quality investments which buy money market

securities on behalf of retail or institutional investors.

Foreign Exchange Swaps - Exchanging a set of currencies in spot date and the reversal

of the exchange of currencies at a predetermined time in the future.

Short-livedmortgage- and asset-backed securities

Money market fundA money market fund (also known as money market mutual fund) is an open-ended mutual

fund that invests in short-term debt securities such as US Treasury bills and commercial paper.

Regulated in the US under the Investment Company Act of 1940, money market funds are

important providers ofliquidity to financial intermediaries.

Explanation

Money market funds seek to limit exposure to losses due to credit, market, and liquidity risks.Money market funds in the United States are regulated by the Securities and ExchangeCommission's (SEC) Investment Company Act of 1940. Rule 2a-7 of the act restricts the

quality, maturity and diversity of investments by money market funds. Under this act, a moneyfund mainly buys the highest rated debt, which matures in under 13 months. The portfolio mustmaintain a weighted average maturity (WAM) of 60 days or less and not invest more than 5% inany one issuer, except forgovernment securities and repurchase agreements.[2]

Unlike most other financial instruments, money market funds seek to maintain a stable value of$1 per share. Funds are able to pay dividends to investors.[2]

Securities in which money markets may invest include commercial paper, repurchaseagreements, short-termbonds and other money funds. Money market securities must be highlyliquid and of the highest quality.

History


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Outside of the U.S., the first money market fund was set up in 1968 and was designed for smallinvestors. The fund was called Conta Garantia and was created by John Oswin Schroy. The

fund's investments included low denominations of commercial paper.

In the 1990s, bank interest rates in Japan were near zero for an extend period of time. To searchfor higher yields from these low rates in bank deposits, investors used money market funds forshort-term deposits instead. However, several money market funds fell off short of their stablevalue in 2001 due to the Enron bankruptcy, in which several Japanese funds had invested, andinvestors fled into government-insured bank accounts. Since then the total value of moneymarkets have remained low.[4]

Money market funds in Europe have always had much lower levels of investments capital thanin the United States or Japan. Regulations in theEU have always encouraged investors to use

banks rather than money market funds for short term deposits.[4]

[edit] Breaking the buck

Money market funds seek a stable net asset value, or NAV (which is generally $1.00 in the US);they aim never to lose money. If a fund's NAV drops below $1.00, it is said that the fund "brokethe buck".


It is important to note that, while the funds are managed in a fairly safe manner, there wouldhave been many more failures except that the companies offering the money market funds had,in the past, stepped in when necessary to support the fund and avoid having the funds "break thebuck". This was done because the expected cost to the business from allowing the fund value todrop -- in lost customers and reputation -- was greater than the amount needed to bail it out. [5]

The Community Bankers US Government Fund broke the buck in 1994, paying investors 96cents per share. This was the first failure in the then 23-year history of money funds and therewere no further failures for 14 years. The fund had invested a large percentage of its assets intoadjustable rate securities. As interest rates increased, these floating rate securities lost value.

This fund was an institutional money fund, not a retail money fund, thus individuals were notdirectly affected.

No further failures occurred until September 2008, a month that saw tumultuous events formoney funds. Though, as noted above, other failures were only averted by infusions of capitalfrom the fund sponsors.[6]

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[edit] September 2008

See also:Financial crisis of 20072010

Money market funds increasingly became important to the wholesale money market leading upto the crisis. Their purchases ofasset-backed securities and large-scale funding of foreign bank's

short-term US denominated debt put the funds in a pivotal position in the market place. [4]

The week of September 15, 2008 to September 19, 2008 was very turbulent for money fundsand a key part of financial markets seizing up.[7]

[edit] Events

On Monday, September 15, 2008, Lehman Brothers Holdings Inc. filed forbankruptcy. OnTuesday, September 16, 2008, Reserve Primary Fund, the oldest money fund, broke the buckwhen its shares fell to 97 cents afterwriting offdebt issued by Lehman Brothers.[8]

The resulting investor anxiety almost caused a run on money funds, as investors redeemed theirholdings and funds were forced to liquidate assets or impose limits on redemptions: throughWednesday, September 17, 2008, prime institutional funds saw substantial redemptions.[9][10]Retail funds saw net inflows of $4 billion, for a net capital outflow from all funds of $169billion to $3.4 trillion (5%).[9]

In response, on Friday, September 19, 2008, the U.S. Department of the Treasury announced anoptional program to "insure the holdings of any publicly offered eligible money market mutualfundboth retail and institutionalthat pays a fee to participate in the program". The insurancewill guarantee that if a covered fund breaks the buck, it will be restored to $1 NAV.[10][11] Thisprogram is similar to theFDIC, in that it insures deposit-like holdings and seeks to prevent runs

on the bank.[7][12]The guarantee is backed by assets of the Treasury Department's ExchangeStabilization Fund, up to a maximum of $50 billion. It is very important to realize that thisprogram only covers assets invested in funds before September 19, 2008 and those who soldequities, for example, during the recent market crash and parked their assets in money funds, areat risk. The program immediately stabilized the system and stanched the outflows, but drewcriticism from banking organizations, including the Independent Community Bankers ofAmerica and American Bankers Association, who expected funds to drain out of bank depositsand into newly insured money funds, as these latter would combine higher yields withinsurance.[7][12]

[edit] Analysis

The crisis almost developed into a run on the shadow banking system: the redemptions caused adrop in demand forcommercial paper,[7]preventing companies from rolling over their short-termdebt, potentially causing an acute liquidity crisis: if companies cannot issue new debt to repaymaturing debt, and do not have cash on hand to pay it back, they will default on theirobligations, and may have to file forbankruptcy. Thus there was concern that the run could

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cause extensive bankruptcies, a debt deflation spiral, and serious damage to the real economy, asin the Great Depression.[citation needed]

The drop in demand resulted in a "buyers strike", as money funds could not (because ofredemptions) or would not (because of fear of redemptions) buy commercial paper, driving

yields up dramatically: from around 2% the previous week to 8%,[7]

and funds put their moneyin Treasuries, driving their yields close to 0%.

This is a bank run in the sense that there is a mismatch in maturities, and thus a money fund is a"virtual bank": the assets of money funds, while short term, nonetheless typically havematurities of several months, while investors can request redemption at any time, withoutwaiting for obligations to come due. Thus if there is a sudden demand for redemptions, theassets may be liquidated in a fire sale, depressing their sale price.

An earlier crisis occurred in 20072008, where the demand forasset-backed commercial paperdropped, causing the collapse of some structured investment vehicles.

[edit] Statistics

The Investment Company Institute reports statistics on money funds weekly as part of itsMutual Fund Statistics, as part of its industry statistics, including total assets and net flows, bothfor institutional and retail funds. It also provides annual reports in the ICI Fact Book.

As of December 11, 2008, almost 2,000 money funds are in operation,[citation needed] with totalassets of nearly US$3.8 trillion.[13] Of this $3.8 trillion, retail money market funds had $1.282trillion in Assets Under Management (AUM), of which 77% was in tax-exempt funds.Institutional funds had $2.5 trillion under management of which the overwhelming majority -

93% - was tax-exempt.[14]

iMoneyNet is the leading provider of money fund statistics. iMoneyNet has been collectingmoney fund data since the early 1970's.

[edit] Types of money funds

[edit] Institutional money fund

Institutional money funds are high minimum investment, low expense share classes which aremarketed to corporations, governments, or fiduciaries. They are often set up so that money is

swept to them overnight from a company's main operating accounts. Large national chains oftenhave many accounts with banks all across the country, but electronically pull a majority of fundson deposit with them to a concentrated money market fund.

The largest institutional money fund is the JPMorgan Prime Money Market Fund, with overUS$100 billion in assets. Among the largest companies offering institutional money funds are

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BlackRock, Western Asset, Federated, Bank of America, Dreyfus, AIM and Evergreen(Wachovia).

Retail money fund

Retail money funds are offered primarily to individuals. Retail money market funds holdroughly 33% of all money market fund assets.

Retail money funds come in a few different breeds: government-only funds, non-governmentfunds and tax-free funds. Yields are typically somewhat higher than in savings accounts.[citationneeded] Investors will obtain a slightly higher yield in the non-government variety, whose principalholdings are high-quality commercial paper and other instruments; of course, such funds mayget in trouble if fears emerge about previously well-regarded companies.

Instruments of the United States Government (and funds holding them) are usually exempt fromstate income taxes, and conversely, "muni bond funds" are generally exempt from federal

income tax. In both cases, yields are (almost always) lower, but may result in betterconservation of value depending an individual investors' tax situation.

The largest money market mutual fund isFidelity Investments' Cash Reserves(Nasdaq:FDRXX), with assets exceeding US$110 billion. The largest retail money fundproviders include: Fidelity, Vanguard (Nasdaq:VMMXX), and Schwab (Nasdaq:SWVXX).

[edit] Similar investments

[edit] Money market accounts

Main article: Money market account

Banks in the United States offer savings and money market deposit accounts, but these shouldn'tbe confused with money mutual funds. These bank accounts offer higher yields than traditionalpassbooksavings accounts, but often with higher minimum balance requirements and limitedtransactions. A money market account may refer to a money market mutual fund, a bank moneymarket deposit account (MMDA) or a brokerage sweep free credit balance.

[edit] Ultrashort bond funds

Main article: Ultrashort bond funds

Ultrashort bond funds are mutual funds, similar to money market funds, that, as the nameimplies, invest in bonds with extremely short maturities. Unlike money market funds, however,there are no restrictions on the quality of the investments they hold. Instead, ultrashort bondfunds typically invest in riskier securities in order to increase their return. Since these high-risksecurities can experience large swings in price or even default, ultrashort bond funds, unlikemoney market funds, do not seek to maintain a stable $1.00 NAV and may lose money or dipbelow the $1.00 mark in the short term.[15] Finally, because they invest in lower quality

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securities, ultrashort bond funds are more susceptible to adverse market conditions such as thosebrought on by theFinancial crisis of 20072010.

Enhanced cash funds

Enhanced cash funds arebond funds similar to money market funds, in that they aim toprovide liquidity and principal preservation, but which:[16]

invest in a wider variety of assets, and do not meet the restrictions of SEC Rule 2a-7;

aim for higher returns;

have less liquidity;

do not aim as strongly for stable NAV.

Enhanced cash funds will typically invest some of their portfolio in the same assets as money

market funds, but others in riskier, higher yielding, less liquid assets such as:

[16]

lower -rated bonds;

longer maturity;

foreign currency denominated debt;

asset-backed commercial paper(ABCP);[17]

Mortgage-backed securities (MBSs);[18]

Structured investment vehicles (SIVs).

In general, the NAV will stay close to $1, but is expected to fluctuate above and below, and willbreak the buck more often.[17][18][19]Different managers place different emphases on risk versusreturn in enhanced cash some consider preservation of principal as paramount, [17] and thus takefew risks, while others see these as more bond-like, and an opportunity to increase yield withoutnecessarily preserving principal. These are typically available only to institutional investors, notretail investors.

The purpose of enhanced cash funds is not to replace money markets, but to fit in the continuumbetween cash and bonds to provide a higher yielding investment for more permanent cash.That is, within one's asset allocation, one has a continuum between cash and long-terminvestments:

cash most liquid and least risky, but low yielding;

money markets / cash equivalents;

enhanced cash;

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long-term bonds and other non-cash long-term investments least liquid and most risky,

but highest yielding.

Enhanced cash funds were developed due to low spreads in traditional cash equivalents. [17]

There are also funds which are billed as "money market funds", but are not 2a-7 funds (do notmeet the requirements of the rule).[16] In addition to 2a-7 eligible securities, these funds invest inEurodollars and repos (repurchase agreements), which are similarly liquid and stable to 2a-7eligible securities, but are not allowed under the regulations.

iMoneyNet provides detailed information on more than 200 enhanced type products with it'squarterly Enhanced Cash Report.

Discount and accrual instruments

There are two types of instruments in the fixed income market that pay the interestat maturity, instead of paying it as coupons. Discount instruments, likerepurchase agreements, are issued at a discount of the face value, and theirmaturity value is the face value. Accrual instruments are issued at the face valueand mature at the face value plus interest.[7]

MONEY MARKET MUTUAL FUND

Beginning Investor, Government Bond, Money Market,Mutual Funds,T-bills

Investors interested in the money marketcan access it most easily through money market mutual

funds, but these vehicles do not let smaller investors off the hook when it comes to having a

rudimentary understanding of the Treasury bills, commercial paper,bankers acceptances,

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repurchase agreements andcertificates of deposit(CDs) that make up the bulk of money market

mutual fund portfolios.

Purpose of Money Market Mutual Funds for Investors

There are three instances when money market mutual funds, because of theirliquidity, are

particularly suitable investments.

1. Money market mutual funds offer a convenient parking place for cash reserves when an

investor is not quite ready to make an investment or is anticipating a near-term cash

outlay for a non-investment purpose. Money market mutual funds offer ultimate safety

and liquidity. This means that investors will have an expected sum of cash at the verymoment that they need it. (For more on this, read Get A Short-Term Advantage In The

Money Market.)

2. An investor holding a basket of mutual funds from a single fund company may

occasionally want to transfer assets from one fund to another. If, however, the investor

wants to sell a fund before deciding on another fund to purchase, a money market mutual

fund offered by the same fund company may be a good place to park the proceeds of

sale. Then, at the appropriate time, the investor may exchange his or her money market

mutual fund holdings for shares of the other funds in the fund family.

3. To benefit their clients, brokerage firms regularly use money market mutual funds to

provide cash management services. Putting a client's dormant cash into money market

mutual funds will earn the client an extra percentage point (or two) in annual returns

above those earned by other possible investments. (To read more about the money

market, check out The Money Markettutorial.)

ADVANTAGES

Advantage 1 -- Higher Rate of Interest

Money market accounts pay higher interest rates than other types of bank accounts, including

passbook savings accounts and regular savings accounts, provided they maintain the minimum

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balance. The interest rate is tiered, compounded and credited monthly so that a money market

account accrues more profit as the account balance increases.

Advantage 2 - Low Risk

The independent Federal Deposit Insurance Corp. insures money market accounts up to the

$250,000 limit per account, making them low-risk and safe investments. This makes the account

popular with investors as it protects them against loss of deposit.

Advantage 3 - Easy Access

Account holders can easily access their money market accounts through ATMs, transfers and

checks. Banks, however, put a limit on the number of transactions and transfers per month.

Disadvantage 1 -- High Balance Requirement

Financial institutions require account holders to maintain a minimum balance in their money

market accounts. Bank of America, for example, requires a minimum balance of $2,500 in all its

money market accounts. Commerce Banks Premium Money Market Account specifies an

average daily balance of $5,000. Accounts that do not maintain this minimum are fined.

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Disadvantage 2 - Limited Number of Withdrawals and Transfers

Most money market accounts allow only a limited number of monthly withdrawals and transfers

as per federal banking regulations. For example, the National Alliance Bank permits no more

than six withdrawals per statement cycle. Commerce Banks Premium Money Market Account

allows up to six transfers or withdrawals per month. This poses an inconvenience to a customer

who needs to make an emergency withdrawal that will exceed the number of withdrawals

permitted.

Disadvantage 3 - Interest Rate Fluctuation and Other Fees

A variable and fluctuating interest rate applies on a money market account. The interest rate

depends on changes in the overall market interest rates.

Banks and other depository institutions offering money market accounts establish fees for

account maintenance, transactions and other financial services -- which reduce the value of the

account.

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Market fluctuations: A friend or an enemy?

The stock market has outdone many financial instruments in the recent past due to the high return

yielded. The market has grown by nearly 33 percent since June 2012 and has already experienceda growth of around 14 percent for the current year. Further on, it has outdone regional marketssuch as India, Pakistan, Vietnam, Cambodia, China and Indonesia and also the BRICK markets.Market price earnings ratios are still comparatively lower than our regional counterparts. Thus,we have experienced considerable interest from foreign investors in the recent past. For example,the percentage of foreign activities in the market which was around 10 percent in 2011 and 24percent in 2012 has already grown above 40 percent during the first five months of 2013. TheColombo Stock Exchange (CSE) has indeed proved to be a lucrative investment opportunity.

A point noteworthy is that the growth experienced was not achieved overnight projecting signalsof stability in the market. This could be further justified with the S&P SL 20 (an index that

monitors the performance of some of the fundamentally strong stocks) growing faster than theAll Share Price Index (ASPI) during the current year. The market sentiments are geared at long-term investment which is conducive for further growth in the market.However, when analyzing the movements of the ASPI (Table 1) it is evident that even though ithas grown in the long run, it was subjected to short-term fluctuations. It is a normal phenomenonin a market. One should not enter the market with a mind frame that the market will continue togrow. The price of a stock is a manifestation of the demand and supply for a stock. For anexample when the demand exceeds the supply prices increase. The demand and supply of stocksare driven by market sentiments. There is a possibility of market sentiments changing. It cannotbe forecasted with certainty that the market will continue to grow in the short run given the factthat it went up in the recent past. As long as one has invested in fundamentally strong stocks that

are not over valued in price and he enters the market with a long-term horizon, he should not bealarmed of such fluctuations.Further on, these fluctuations could be identified as stock market corrections. Even though itwould seem painful in the short run, it is actually healthy because there is always excessspeculation developed during the bull market and excess speculation is a hindrance towards astable and growing market.Moreover, short-term fluctuations of this nature spout unlimited opportunities. Once, WarrenBuffet, one of the most successful investors, stated, Look at market fluctuations as your friendrather than your enemy.

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Tips on maximizing opportunities in fluctuating marketDont panic

Douglus Adams

The golden rule is not to panic and make rash decisions when there is a downward trend inprices. As stated, if one has invested in fundamentally strong stocks that are not over valued inprice at the point of purchase and he enters the market with a long-term horizon he should not bealarmed of such fluctuations. Do your own research on the reasons for the downward trend.Dont base your decisions on rumors. If you get alarmed and start selling your shares for no validreason others will follow you and the market will go down further and increase the possibility ofincurring more losses in the market. Bear in mind that a market is the combined behaviour ofthousands of people responding to information and market signals. Be a responsible investor and

refrain from sending wrong market signals through your transactions.I buy on the assumption that they will close the market the next day and open in five

years. Only buy something that youd be perfectly happy to hold if the market shut down for tenyears

Warren Buffett

The driving force behind investors behaving negatively towards short-term dips in the marketgreatly depends on liquidity concerns of the investor. You should invest money that you will notneed in the near future. It is only then that one would be able to maximize the profits in agrowing market. Invest a certain percentage of your savings.

I will tell you how to become rich. Close the doors. Be greedy when others are fearful

Warren BuffettInvestors usually invest when a market is going up. Differently stated at a point that demand andthereby prices are going up. When there is a down trend in the short run, investors could buyshares at a lower price than before. Hence, the average cost of the stock would go down andincrease profits.For an example, if A buys 100 shares at the average market price of Rs.10 and the marketwitnesses a short-term dip in the market and the price goes down to Rs.5, he could purchaseanother 100 shares at the given price. The average price goes down to Rs.7.50.

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Dont invest all the money at once. Purchase within a certain time span and under differentmarket conditions to maximize the opportunities in a growing market.

Whether were talking about socks or stocks, I like buying quality merchandise when it

is marked down

Warren Buffet

It is advised to invest in fundamentally strong stocks that are not overvalued and not in stocksthat witness an upward movement in prices during a short time period for no valid reason.Experience form our stock market reveals that fundamentally strong stocks go down slower thanthe others when the market is experiencing a dip in the short run. Similarly, such stocks wouldregain the demand and thereby the price faster than other stocks. There is a book value for astock based on the performance of the company. Even if the price decreases in the short run, ithas to reach its book value before long.

Remember that credit is money

Benjamin Franklin

Refrain from excessive trading from margin trading accounts. The rationale behind margintrading is to purchase on credit and pay an interest on the principal amount until the stocks aresold at a higher price and the money is repaid. This process is successful in a bull market. If thetrend is reversed and investors fail to pay the interest there will be margin calls. There will beexcessive selling that would affect adversely on the market.It could be concluded on the note that the movements of stock prices are subjected tofluctuations. It is an inherent quality in an exchange market where investment decisions aredriven by independent individuals. Market fluctuations are market corrections of inappropriateinvestment decisions. Hence, such fluctuations could be kept under manageable limits providedinvestors act wisely and patiently. Look at market fluctuations as your friend rather than yourenemy.

MONEY MARKET FUND

Money market fund

A money market fund (also known as money market mutual fund) is an open-ended mutual

fund that invests in short-term debt securities such as US Treasury bills and commercial paper.

Regulated in the US under the Investment Company Act of 1940, money market funds are

important providers ofliquidity to financial intermediaries.

Explanation

Money market funds seek to limit exposure to losses due to credit, market, and liquidity risks.Money market funds in the United States are regulated by the Securities and ExchangeCommission's (SEC) Investment Company Act of 1940. Rule 2a-7 of the act restricts thequality, maturity and diversity of investments by money market funds. Under this act, a moneyfund mainly buys the highest rated debt, which matures in under 13 months. The portfolio must

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maintain a weighted average maturity (WAM) of 60 days or less and not invest more than 5% inany one issuer, except forgovernment securities and repurchase agreements.[2]

Unlike most other financial instruments, money market funds seek to maintain a stable value of$1 per share. Funds are able to pay dividends to investors.[2]

Securities in which money markets may invest include commercial paper, repurchaseagreements, short-termbonds and other money funds. Money market securities must be highlyliquid and of the highest quality.

History



Outside of the U.S., the first money market fund was set up in 1968 and was designed for smallinvestors. The fund was called Conta Garantia and was created by John Oswin Schroy. Thefund's investments included low denominations of commercial paper.

In the 1990s, bank interest rates in Japan were near zero for an extend period of time. To searchfor higher yields from these low rates in bank deposits, investors used money market funds forshort-term deposits instead. However, several money market funds fell off short of their stable

value in 2001 due to the Enron bankruptcy, in which several Japanese funds had invested, andinvestors fled into government-insured bank accounts. Since then the total value of moneymarkets have remained low.[4]

Money market funds in Europe have always had much lower levels of investments capital thanin the United States or Japan. Regulations in theEU have always encouraged investors to usebanks rather than money market funds for short term deposits.[4]

[edit] Breaking the buck

Money market funds seek a stable net asset value, or NAV (which is generally $1.00 in the US);

they aim never to lose money. If a fund's NAV drops below $1.00, it is said that the fund "brokethe buck".


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It is important to note that, while the funds are managed in a fairly safe manner, there wouldhave been many more failures except that the companies offering the money market funds had,in the past, stepped in when necessary to support the fund and avoid having the funds "break thebuck". This was done because the expected cost to the business from allowing the fund value todrop -- in lost customers and reputation -- was greater than the amount needed to bail it out. [5]

The Community Bankers US Government Fund broke the buck in 1994, paying investors 96cents per share. This was the first failure in the then 23-year history of money funds and therewere no further failures for 14 years. The fund had invested a large percentage of its assets intoadjustable rate securities. As interest rates increased, these floating rate securities lost value.This fund was an institutional money fund, not a retail money fund, thus individuals were notdirectly affected.

No further failures occurred until September 2008, a month that saw tumultuous events formoney funds. Though, as noted above, other failures were only averted by infusions of capitalfrom the fund sponsors.[6]

[edit] September 2008

See also:Financial crisis of 20072010

Money market funds increasingly became important to the wholesale money market leading upto the crisis. Their purchases ofasset-backed securities and large-scale funding of foreign bank'sshort-term US denominated debt put the funds in a pivotal position in the market place. [4]

The week of September 15, 2008 to September 19, 2008 was very turbulent for money fundsand a key part of financial markets seizing up.[7]

[edit] Events

On Monday, September 15, 2008, Lehman Brothers Holdings Inc. filed forbankruptcy. OnTuesday, September 16, 2008, Reserve Primary Fund, the oldest money fund, broke the buckwhen its shares fell to 97 cents afterwriting offdebt issued by Lehman Brothers.[8]

The resulting investor anxiety almost caused a run on money funds, as investors redeemed theirholdings and funds were forced to liquidate assets or impose limits on redemptions: throughWednesday, September 17, 2008, prime institutional funds saw substantial redemptions.[9][10]Retail funds saw net inflows of $4 billion, for a net capital outflow from all funds of $169billion to $3.4 trillion (5%).[9]

In response, on Friday, September 19, 2008, the U.S. Department of the Treasury announced anoptional program to "insure the holdings of any publicly offered eligible money market mutualfundboth retail and institutionalthat pays a fee to participate in the program". The insurancewill guarantee that if a covered fund breaks the buck, it will be restored to $1 NAV.[10][11] Thisprogram is similar to theFDIC, in that it insures deposit-like holdings and seeks to prevent runson the bank.[7][12]The guarantee is backed by assets of the Treasury Department's Exchange

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fluctuation m.m (1)

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