In: Categories » Legal and finance » Stocks and mutual funds » Monetary Aggregates
|
Monetary aggregates measure the money stock, which is defined as the sum of highly liquid assets that serve either as a medium of exchange, standard of value, or a store of value. Money supply measures in terms of monetary aggregates are necessary because many assets serve the same purpose as currency; for example, checking accounts, savings accounts, etc. Therefore, operational measures of the money stock must take these assets into consideration. In the United States the monetary aggregate denoted M1 is the most narrowly defined measure of the money stock, and a broader measure, denoted M2, includes everything in M1 plus additional assets. M3 is even a broader measure, including everything in M1 and M2 and more. M1 includes all the currency not held by the Treasury, Federal Reserve Banks, foreign financial institutions, and commercial banks, plus an array of checkable deposits and travelers’ checks. Currency included in M1 is the currency circulating as a medium of exchange. Commercial bank vault cash is excluded because it is represented in depositors’ accounts, and summing the vault cash with customer checking accounts would be counting those funds twice. The largest share of checkable deposits are called demand deposits, because the bank owes that money to the depositor on demand, without prior notice or other conditions. Bank customers often call these accounts checking accounts. Another checkable account is the negotiable order of withdrawal (NOW) account, an interest-bearing account at thrift institutions that resembles a savings account but has checking privileges. Automatic transfer service (ATS) accounts, which automatically transfer funds from an interest-bearing savings account to a checking account as needed, are also included as checkable deposits in M1, as are Credit Union Share Drafts (CUSDs). Checkable deposits owned by other depository institutions, the U.S. government, foreign banks, and other official institutions are excluded from M1. M1 therefore represents highly liquid assets acceptable as a medium of exchange. Often cash is preferred over checks for small transactions, but for large transactions checks are preferred over cash. M2 includes everything in M1 plus small repurchase agreements (less than $100,000), money market deposit accounts and money market mutual fund accounts when minimum deposits are less than $50,000, and savings and small time deposits (less than $100,000). A repurchase agreement is an arrangement under which a commercial bank sells a government bond to a large depositor and agrees to buy it back at a higher price in the future, overnight in some cases. It is an underhanded means of paying interest, and grew into prominence when regulations forbade interest rate ceilings on checking accounts. Money market deposit accounts and money market mutual fund accounts require high minimum deposits, pay high interest, and allow only checks written above a certain amount, such as $500. M2 does not include deposits held in tax-exempt retirement accounts, or those owned by the federal government, foreign governments, or commercial banks. M2 embraces assets less liquid than the assets included in M1, but assets that can readily be converted into cash. M3 includes everything in M2, but adds large repurchase agreements and time deposits, eurodollar accounts, large time deposits, and money market mutual fund accounts held by institutions. Eurodollar accounts are accounts owned by U.S. residents at foreign branches of U.S. banks worldwide, and all banking offices in Canada and the United Kingdom. An even broader monetary aggregate is L. L includes everything in M3 plus short-term treasury bonds, commercial paper, U.S. savings bonds, and bankers’ acceptances. Commercial paper is an unsecured promise to pay. It is sold at a discount from a face value and matures in a short time, no more than nine months. Bankers’ acceptances, meaning a bank accepts (or guarantees) another firm’s promise to pay, provide short-term financing for commercial trade. M3 and L are less liquid assets than M1 and M2, but they represent readily accessible purchasing power, and are therefore included in the broader definitions of money.
|
legal disclaimer
1) Our website is not responsible for the information contained by this article as well for any and all copyright infringements by authors and writers. E-articles is a free information resource. If you suspect this article for any copyright infringements, please read the Terms of service and contact us to investigate the problem.
2) The E-articles directory team is not responsible for inaccuracies, falsehoods, or any other types of misinformation this tutorial may contain and will not be liable for any loss or damage suffered by a user through the user's reliance on the information gained here. Please read the Terms of service
Useful tools and features
If you like this article (tutorial), please link to it from your web page using the information above. Linking to this page, this is the only way to help us improve our service, the same time providing your visitors with a way to improve their online experience.
related articles
Usually, penny stock investments are a way to earn preety handsome returns but it's at risk. It all depends if someone knows the best way to choose his penny stock. Before putting in their money, investors should be well advised to do a full basic research on the target penny stocks. If you can identify undervalued stocks, they might become a goldmine for you. But keep in mind you may also end by losing your money if you misread any upward movement in the penny stocks market. Fraud can be easily smelled by the potential ...
2. The pros and cons of stock trading
Stock trading is an important activity for the business people related to the trading business. The purpose of this activity is simple: to invest in the business and to raise capital. This article speaks about how does the stock trading work, its pros and cons. The new trading techniques made life easier and provide possibilities for everyone who really wants to get in this business. Also, while the internet provides full access, you may receive daily updated information about your stock trading venture. ...
3. Buying Mutual Funds Online ~ No Broker Needed
Before you invest in a mutual fund, read the fund’s prospectus so that you understand exactly what you’re investing in. Next, fill out the online account application form for the mutual fund company. At companies like Vanguard (www.vanguard.com), depending on the type of type of account you desire, you can open an account online or print the application and mail it to the mutual fund firm. For specific details about opening an account, contact the fund company or broker. In general, you need to com...
4. Guidelines About When Is The Right Time to Sell Your Mutual Funds
If your fund becomes one of the worst performers, consider selling. However, you need to look at more than just the fund’s rating. Consider these guidelines for determining when to sell a fund: You may want to sell if you have overlapping stocks in your portfolio. (For more about overlapping stocks, see the sidebar “Checking for overlaps in your mutual funds.”) You can use the Morningstar Portfolio X-Ray feature (portfolio.morningstar.com) to discover whether the two growth mu...
Recent changes in SEC regulations and technology have transformed how investors interact with the stock market. I explain these changes in the following sections, and I show you how these changes enable online investors to make more money on their investments. In the following sections, you gain an understanding of what happens after you click your mouse button to execute an online trade. You also discover how you can avoid hidden transaction costs by using an electronic communications network (ECN) and how you benefit from ECNs ...
6. Mutual Fund Basics
Over the years, the stock market has outperformed any other investment. Unlike a mutual fund, however, individual investors frequently can’t purchase a large number of different securities to diversify their investment risk. Buying shares in a mutual fund solves this problem. When you invest in a mutual fund, the diversity of the portfolio reduces the risk of losing your total investment. Selecting the right fund may be difficult, but you can find plenty of online help. Assume that you have $1,000 to inves...
7. How to Screen Mutual Funds Online
The Internet provides a variety of mutual fund screening tools that sort thousands of mutual funds by criteria that you select. For example, you may want one type of fund for your children’s education — something long term because you don’t need the money for 10 to 20 years — and a different fund for your retirement to help you reduce your current tax liabilities. With these online screening tools, you can evaluate several funds that meet your financial needs. Most of the stock-screenin...
8. Advantages and Disadvantages of Mutual Funds
As a general rule, the first palce to start analyzing a fund is by by comparing its expense ratio to similar funds. All funds have fees and expenses, but the amounts vary. In addition to sales and redemption fees, the mutual fund’s prospectus indicates the fund’s management and administration expenses. The fund’s investment advisor generally receives 0.5 to 1.0 percent of the fund’s average daily net assets. Administrative expenses include legal, auditing, and accounting costs, along with the f...
9. Buying Mutual Funds Online Using an Online Broker
You have many choices in how you purchase mutual funds. In addition to purchasing directly from the mutual fund company, you can purchase mutual funds through registered representatives of banks, trust companies, stockbrokers, discount brokers, and financial planners. To purchase mutual funds via the Internet, go to an online broker’s Web site. (I list a few examples later in this section.) Register by completing the online application form. You have to provide the same information you normally provide f...
10. What you have to know to determine the fair value of a stock and the right price
You can use several methods to determine the fair value of a stock. Throughout the following sections, I discuss three of the more popular methods of determining the right price for a stock: Fundamental analysis Technical analysis Market timing Valuing securities is important to your financial health. Stocks are more difficult to value than bonds. Bonds have a limited life and a stated payment rate. Common stocks don’t have a limi...