Financial Terms related to Money

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MONEY
At the money

• Is an option which has an exercise or strike price that is the same as the underlying
instrument at current market valuations.

• An option is at-the-money if the strike price of the option is equal to the market
price of the underlying security. For example, if xyz stock is trading at 54, then the
xyz 54 option is at-the-money.

Call money

• Interest-bearing bank deposits that can be withdrawn on 24-hours' notice. Many

Eurodeposits take the form of call money.

Call money rate

• Also called the broker loan rate, the interest rate that banks charge brokers to
finance margin loans to investors. The broker charges the investor the call money
rate plus a service charge.
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Earnest money

• Is a deposit made towards the purchase of real property. In some locales it is

viewed synonymously with the Binder. Other places consider it as an additional
deposit towards the purchase. Here, the amount can be quite large. Often it would
accompany a signed sales contract prior to the closing or settlement.

Fiat money

• Nonconvertible paper money.

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Hot money

• This refers to uninsured (jumbo) deposits currently over $100,000. Since they are
uninsured, depositors are sensitive to the health of the bank and run at the first sign
of distress.

• Money that moves across country borders in response to interest rate differences
and that moves away when the interest rate differential disappears.

In the money

• A put option that has a strike price higher than the underlying futures price, or a call
option with a strike price lower than the underlying futures price. For example, if the
March COMEX silver futures contract is trading at $6 an ounce, a March call with a
strike price of $5.50 would be considered in-the-money by $0.50 an ounce. Related:
put.

In the money option

• An option selling at a price such that it has intrinsic value (i.e., you receive cash if
you exercise now).

Money base

• Composed of currency and coins outside the banking system plus liabilities to the
deposit money banks.
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Money center banks

• Banks that raise most of their funds from the domestic and international money
markets, relying less on depositors for funds.

Money management

• Related: Investment management.

Money manager

• Related: Investment manager.

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Money market

• The market in which short-term debt instruments (bills, commercial paper, bankers'
acceptances, etc.) are issued and traded.

• The market where debt securities that will mature within one year are traded.

• Money markets are for borrowing and lending money for three years or less. The
securities ina money market can be U.S.government bonds, treasury bills and
commercial paper from banks and companies.

• The securities market that deals in short-term debt. Money-market instruments are
forms of debt that Mature in less than one year and are very Liquid. Treasury bills
make up the bulk of the money-market instruments.

• The market in which short-term debt instruments (bills, commercial paper, bankers'
acceptances, etc.) are issued and traded.

Money market center bank

• A bank that is one of the nation's largest and consequently plays an active and
important role in every sector of the money market.

Money market certificates

• Abbreviated MMCs. Six-month certificates of deposit with a minimum denomination

of $10,000 on which banks and thrifts may pay a maximum rate tied to the rate at
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which the U.S. Treasury has most recently auctioned 6-month bills.

Money market demand account

• An account that pays interest based on short-term interest rates.

Money market fund

• A mutual fund that invests only in short term securities, such as bankers'
acceptances, commercial paper, repurchase agreements and government bills. The
net asset value per share is maintained at $1. 00. Such funds are not federally

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insured, although the portfolio may consist of guaranteed securities and/or the fund
may have private insurance protection.

• Mutual fund that invests solely in money market instruments.

• A Mutual Fund that invests in short-term debt instruments. The fund's objective is
to earn interest while maintaining a stable net asset value of $1.00 per share.
Generally sold with no load, the fund may also offer draft-writing privileges and low
opening investments.

• Are mutual funds which invest in short-term instruments such as treasury bills,
commercial paper, and asset backed securities (ABS). Broadly defined, these
investments have maturities, and for some, durations less than a year. Often, these
funds try to keep the average maturity or quantitative duration within 2-3 months.
Also, these funds try to maintain a net asset value (NAV) of $1 per share. However,
this price level is not guaranteed and there have been cases where it was broken. In
the latter case, it is known as breaking a buck.

Money market hedge

• The use of borrowing and lending transactions in foreign currencies to lock in the
home currency value of a foreign currency transaction.

Money market mutual funds

• Professionally managed portfolios of various popular marketable securities, having

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instant liquidity, competitive yields, and low transaction costs.

Money market notes

• Publicly traded issues that may be collateralized by mortgages and MBSs.

Money purchase plan

• A defined benefit contribution plan in which the participant contributes some part
and the firm contributes at the same or a different rate. Also called and individual
account plan.

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Money rate of return

• Annual money return as a percentage of asset value.

• Annual return as a percentage of asset value.

Money supply

• M1-A: Currency plus demand deposits M1-B: M1-A plus other checkable deposits.
M2: M1-B plus overnight repos, money market funds, savings, and small (less than
$100M) timedeposits.M3: M-2 plus large time deposits and term repos. L: M-3 plus
other liquid assets.

• This denotes the total amount of money circulation in the economy. There are
various components such as high powered money' (also referred to as the base
money), M1, M2 and M3.

• Definitions Used By the Fed

M-1: Currency in circulation plus demand deposits plus other checkable deposits
including NOW accounts.
M-2: M-1 plus money market deposit accounts plus overnight repos and money
market funds and savings and small (less than $100,000) time deposits at all
depository institutions plus overnight repos at banks plus overnight Euros held by
nonbank U.S. depositors in the Caribbean branches of U.S. banks plus balances at
money funds (excluding institutions-only funds).
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M-3: M-2 plus large (over $100,000) time deposits at all depository institutions, term
repos at banks and S&Ls plus balances at institutions-only money funds.
L: M-3 plus other liquid assets such as term Eurodollars held by nonbank U.S.
residents, bankers' acceptances, commercial paper, Treasury bills and other liquid
governments, and U.S. savings bonds..

• The total stock of bills, coins, loans, credit and other liquid instruments in the
economy. It is divided into four categories -- M1, M2, and M3 -- according to the type
of account in which the instrument is kept.

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New money

• In a Treasury auction, the amount by which the par value of the securities offered
exceeds that of those maturing.

• In a Treasury refunding, the amount by which the par value of the securities offered
exceeds that of those maturing.

Out of the money option

• A call option is out-of-the-money if the strike price is greater than the market price
of the underlying security. A put option is out-of-the-money if the strike price is less
than the market price of the underlying security.

• An option selling at a price such that it has no intrinsic value.

Precautionary demand for money

• The need to meet unexpected or extraordinary contingencies with a buffer stock of

cash.

Speculative demand for money

• The need for cash to take advantage of investment opportunities that may arise.

Time value of money

• The idea that a dollar today is worth more than a dollar in the future, because the
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dollar received today can earn interest up until the time the future dollar is received.

Transaction demand for money

• The need to accommodate a firm's expected cash transactions.

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