Question

a) What are the main characteristics of money market instruments? b) Who are traditionally expected to be the main issuers and holders of money market instruments? How has this changed in recent times? (5 marks) c) The rate of discount is given as d = (R-P)/R.n Where R is redemption value, P is initial price and n is time to redemption If the current rate of discount on treasury bills is quoted at 3 per cent Calculate the price of newly issued 13 week treasury bill, redemption value £500,000 If interest rates stay the same, what will happen to the price as the instrument approaches maturity? (5 marks) What would happen to the price if interest rates rose? Demonstrate by calculating the price were interest rates 4% (5 marks)

Fig: 1

Fig: 2

Fig: 3

Fig: 4

Fig: 5

Fig: 6

Fig: 7

Fig: 8