| Financial instruments found in the debt market | | | | either R bonds or C bonds. |
| include: | | | | In US, US saving bonds are issued as series EE |
| 1. Term Deposits | | | | bonds, Series I Bonds. |
| 2. Government bonds | | | | The investment risk for government savings |
| 3. Treasury Bills (T-Bills) | | | | bonds Issued by Canadian government or US |
| 4. Money Market Funds | | | | government is nil, since the bond is guaranteed by |
| 5. Corporate Bonds and Debentures | | | | the federal government. |
| 6. Domestic Bond Funds. | | | | 3) Treasury bills (T bill) |
| In this article, we will only discuss the term | | | | Treasury bills are a short term money market |
| deposits, government bonds, treasury bills and | | | | instrument and issued by the federal government |
| money market fund. | | | | in terms of 30, 60, 91, 182 and 364 days. They |
| 1. Term Deposits | | | | are sold by auction. |
| Term Deposits are qualifying instruments for tax | | | | Banks and investment houses buy at wholesale in |
| shelter and will share the following | | | | multiples of $5 million denominations. They then |
| characteristics.a) Short-Term Deposit: less than 1 | | | | sell these T-Bills to brokers and investment |
| yearb) Long-Term Deposit: to 5 years. Interest | | | | dealers who break down their purchases into |
| Rate: depends on length of deposit and | | | | $1,000 lots. |
| competitive interest rates available in the | | | | T bills are sold discount to their face values and |
| marketplace. | | | | also sold on the secondary market and their value |
| Long-term investments are called Guaranteed | | | | fluctuates depending on competitive interest rates |
| Investment Certificates (GICs) and can be | | | | at the times of resell. |
| purchased for a lesser amount such as $500. | | | | The short-term nature of T-Bills does not cause a |
| They are also called a Certificate of Deposit (CD). | | | | large exposure to interest rate risk, but to some |
| Rates may vary as little as 0.10% amongst the | | | | extent there is an inflation risk.If a T-Bill is sold |
| deposit takers. | | | | before maturity, any gain is taxed as interest. |
| Term Deposits may be cashed prior to maturity, | | | | 4. Money market funds |
| but this may incur a penalty. GICs generally | | | | Money market fund holds T bills and other short |
| cannot be cashed before they mature, although | | | | term money market contracts. Investors pool the |
| some deposit takers are now more flexible. | | | | investments through the mutual fund. Units in this |
| 2. Government saving bonds | | | | fund can be bought and sold daily. Money market |
| Country residency is required and guaranteed by | | | | funds produce capital gains although their primary |
| the country of issuer.a) Are registered bonds that | | | | function is to generate interest income. Interest is |
| provide protection against loss, theft or | | | | generally paid monthly, while capital gains are paid |
| destruction.b) Are not transferable.c) Can be | | | | annually. |
| purchased for a minimum of $100 to a maximum | | | | The benefits of money market funds includea) |
| of $500,000.d)The interest is taxable and is | | | | security of principalb) liquidity.c) eligible for plan |
| competitive with GICs.e) Mature in 10 to 12 years. | | | | registration |
| In Canada, Canadian saving bonds are issued as | | | | I hope this information will help. |