Investment

Because Treasury bills are free of default risk, various regulations and institutional practices permit them to be used for purposes that often cannot be served by other money market instruments.

63.	What are the terms of federal funds? Why are these terms often misleading? Fed funds help commercial banks meet their daily reserve requirements, which is the amount of money that banks are required to maintain at their regional Federal Reserve. Reserve requirements are based on the volume of customer deposits that each bank holds. Excess, or secondary, reserves are cash amounts held by a bank or financial institution in excess of what is required by regulators, creditors or internal controls. For commercial banks, excess reserves are measured against standard reserve requirement amounts set by central banking authorities. These required reserve ratios set the minimum liquid deposits (such as cash) that must be in reserve at a bank; more is considered excess.
64.	Why do commercial paper securities mature within 270 days or less? Why is the banker’s acceptance form of financing ideal for foreign transactions? CP maturities range up to 270 days; longer maturities require registration with the Securities and Exchange Commission and so are almost never issued. CP most commonly is issued with maturities of less than one or two months in denominations of multiples of $100,000. Therefore, small investors can invest in commercial paper only indirectly, through money market mutual funds.
65.	Why do people invest in stocks? Is stock a riskier investment than bonds? Why or why not? How is preferred stock similar to bonds?
66.	What are the risks faced by investors investing in stocks in emerging markets? Risks of investing in emerging markets Experts often categorize emerging market risk in three ways: Political risk. Emerging markets may have unstable, even volatile, governments. Political unrest can cause serious consequences to the economy and investors. Economic risk. These markets may often suffer from insufficient labor and raw materials, high inflation or deflation, unregulated markets and unsound monetary policies. All of these factors can present challenges to investors. Currency risk. The value of emerging market currencies compared to the dollar can be extremely volatile. Any investment gains can be potentially lessened if a currency is devalued or drops significantly.
67.	To capture investor interests, Exchange Traded Funds (ETF) have become the latest market innovation. Since 1990, they have been actively traded in a form of basket of securities. What are the main features of ETF? Do they have some disadvantages?
68.	What is the motivation for buying foreign stocks?