2 The Money Market

Eurocurrency Historically, the term Euro has been used to describe any
instrument which is held outside the country whose currency is involved.
The term does not imply European specifically. For example, a sterling deposit made by a UK resident in London is domestic sterling, but a
sterling deposit made in New York is Eurosterling. Similarly, US dollar
commercial paper issued outside the USA is Eurocommercial paper while
US dollar commercial paper issued inside the USA is domestic commercial paper. Confusingly, this term has nothing whatever to do with the
proposed European Union currency also called euro.

Terminology

Coupon / yield A certificate of deposit pays interest at maturity as well as

repaying the principal. For example, a CD might be issued with a face
value of 1 million which is repaid on maturity together with interest of,
say, 10 percent calculated on the number of days between issue and
maturity. The 10 percent interest rate is called the coupon. The
coupon is fixed once the CD is issued. This should not be confused with
the yield, which is the current rate available in the market when
buying and selling an instrument, and varies continually.
Discount 1. An instrument which does not carry a coupon is a discount
instrument. Because there is no interest paid on the principal, a buyer will
only ever buy it for less than its face value that is at a discount (unless
yields are negative!). For example, all treasury bills are discount instruments.
2. The word discount is also used in the very specialized context of
a discount rate quoted in the US and UK markets on certain instruments. This is explained in detail below.
Bearer / registered A bearer security is one where the issuer pays the principal (and coupon if there is one) to whoever is holding the security at
maturity. This enables the security to be held anonymously. A registered security, by contrast, is one where the owner is considered to be
whoever is registered centrally as the owner; this registration is changed
each time the security changes hands.

LIBOR LIBOR means London interbank offered rate the interest

rate at which one London bank offers money to another London bank
of top creditworthiness as a cash deposit. LIBID means London interbank bid rate the interest rate at which one London bank of top
creditworthiness bids for money as a cash deposit from another. LIBOR
is therefore always the higher side of a two-sided interest rate quotation
(which is quoted highlow in some markets and lowhigh in others).
LIMEAN is the average between the two sides. In practice, the offered
rate for a particular currency at any moment is generally no different in
London from any other major centre. LIBOR is therefore often just
shorthand for offered interest rate.
Specifically, however, LIBOR also means the average offered rate
quoted by a group of banks at a particular time (in London, usually
11:00 am) for a particular currency, which can be used as a benchmark

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