CERTIFICATES OF DEPOSIT (CD) - Working Capital Management

With a view to further widening the range of money market instruments and to give investors great flexibility in the deployment of their short-term surplus funds in the money market, banks quote rates on CD; those rates are changed periodically in keeping with changes in other money market rates. Yields on CD are greater than those on treasury bills and repose about the same as those in banker’s acceptances and commercial paper. Original maturities of CDs generally range from 30 to 60 days. A fair secondary market has developed for the CDs of the large money market banks. Default risk is that of the bank failing, usually a small possibility, like bankers’ acceptances, corporations buy domestic as well as CDs of large foreign banks.

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