IntroductionThe purpose of this exercise is to compare and contrast the various money market instruments and their yields.InstructionsIn the textbook’s Chapter 6 “Money Markets” there is a graph titled: “Money MarketYields.” Observe that the yields on the various money market instruments are verysimilar. Yet, there are some differences. Use the following source to answer thequestions below:Go to the St. Louis Federal Reserve web site: http://www.stls.frb.org On the top rowunder Research and Data, click on FRED Economic Data then click on Category.Click on Interest Rates under Money Banking and Finance. Click on FRB Rates.Under Effective Fed Funds Rate, check Weekly then click on Weekly. Click on ViewData. Scroll down and record the most recent rate, the one for a year ago and the onefor six years ago.Go back to the Interest Rates page. Using maturities of 3 months for each, do the same asyou did for Fed Funds for Commercial Paper (AA Nonfinancial), Certificates of Deposit(National Rate on Jumbo Deposits (greater or equal to $100,000): 3 Month CD), Prime Bank Loan Rate (there are no choices for maturity), and Treasury Bills, Secondary Market. Do not use any discontinued series.Questionsa. Describe the following money market instruments: Federal Funds, Commercial Paper, CDs, Bank Prime Loans and T-bills.b. Classify them by issuer (the borrower). In other words, who are the issuers (borrowers)?c. Prepare a table showing the three-month rates for the present, for a year ago and for six years ago for instruments above.d. For the most recent period, explain the differences between the rates. Did the ranking of the rates of the various instruments change over time? In other words, which instrument had the highest rate six years ago, last year and now, the next highest, etc.? What would account for the changes in ranking, if any?
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