Money Market Securities – Series 7 Exam
- April 1, 2025
- Posted by: 'FINRA Exam Mastery'
- Category: Finance
🧾 Money Market Securities – Series 7 Exam
📘 What You Need to Know About Money Market Instruments for the Series 7
Money market securities are an important topic on the Series 7 exam. These short-term debt instruments play a critical role in liquidity management for corporations, banks, and governments. They are generally low-risk, low-yield investments designed for safety and capital preservation over short periods.
Here’s a focused summary on money market securities to help you master this topic for the Series 7 exam.
🎯 1. What Are Money Market Securities?
Money market securities are debt instruments with short maturities (typically one year or less).
They are used by issuers to manage short-term financing needs and by investors to preserve capital while earning modest returns.
🎯 2. Key Features of Money Market Securities
- High liquidity (easily converted into cash)
- Low credit risk (though not risk-free)
- Short maturities (usually measured in days, weeks, or a few months)
- Issued at a discount and mature at par (zero-coupon structure is common)
- Relatively low yields compared to longer-term investments
🎯 3. Common Types of Money Market Instruments
| Instrument | Issuer | Key Facts |
|---|---|---|
| Treasury Bills (T-Bills) | U.S. Government | Maturities of 4, 13, 26, or 52 weeks; safest investment |
| Commercial Paper | Corporations | Unsecured, short-term debt; maturities ≤ 270 days |
| Certificates of Deposit (CDs) | Banks | Fixed-term deposits; insured up to FDIC limits |
| Bankers’ Acceptances | Banks (on behalf of companies) | Used to finance international trade |
| Repurchase Agreements (Repos) | Financial Institutions | Short-term collateralized loans using securities |
| Municipal Notes (e.g., TANs, RANs) | Municipal governments | Short-term notes to fund temporary deficits |
| Money Market Mutual Funds | Investment companies | Pools money to invest in high-quality money market instruments |
🎯 4. Details to Remember for the Exam
- T-Bills are sold at a discount and mature at par — no regular interest payments.
- Commercial paper is unsecured corporate debt; it is not backed by collateral.
- Negotiable CDs are over $100,000 in size and can be traded in the secondary market.
- Bankers’ Acceptances are often used for import/export financing and are time drafts guaranteed by a bank.
- Repos involve one party selling securities to another with an agreement to repurchase them later at a higher price.
🎯 5. Risks Associated with Money Market Securities
- Inflation Risk: Returns may not keep up with inflation over time.
- Credit Risk: Small but real, especially with commercial paper and repos.
- Reinvestment Risk: Money market investments mature quickly, requiring reinvestment at potentially lower rates.
🎯 6. Why Investors Use Money Market Securities
- Safety and preservation of principal
- Liquidity for short-term needs
- Parking place for funds awaiting long-term investment opportunities
🚀 Quick Tips for Exam Day
- T-Bills = safest instrument (backed by the U.S. government)
- Commercial paper = unsecured corporate debt, maximum maturity 270 days
- Repos = secured borrowing; backed by securities as collateral
- Money market mutual funds = not FDIC insured, but invest in safe, liquid assets
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