Reserve Releases "Cash Management Opportunities Amid Rate Changes". The Reserve yesterday released a brief publication that discusses the advantages money market funds have over direct money market securities during periods of falling interest rates. "Federal Reserve policy has a significant effect on investment alternatives used for cash management. Historically, money funds have benefited from a decrease in the federal funds rate: more interest-rate-sensitive money is moved to funds from shorter duration securities such as bank deposits, repurchase agreements (repos), commercial paper and auction-rate securities.... In addition to being the model cash diversification tool, the "lag" in money market fund yields ... [because of their weighted average maturity (WAM)] is an advantage in falling rate scenarios."

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