Global Money Market and Abcp

Catalog

1.Introduction…...……………………………………………………………………………………….…..3

2. What is money market? ……………………………………………………………………………….4

3. Commercial paper and ABCP……………………………….………………………………..……...5

3.1Introduction of commercial paper……………………………………………………………….5

3.2 The risks of commercial paper………………………………………………….……………......6

3.3 Introduction of ABCP……………………………………………….…………………………………..7

4. The risks of ABCP……………………………………………………………………………..………….9

4.1 Problems associated with ABCP………………………………………………….……………...….9

4.2 ABCP and the Financial Crisis………………………………………….…………………...………10

4.3 ABCP and Lehman Brother………………………………………….………………………………13

5.Conclusion………………………………………….……………………………………………………..15

Reference………………………………………….…………………………………………………………...16

1. Introduction

As the rapid development of financial market, there are many innovative financial products in order to satisfy various kinds of demand from investors. This paper focus on one innovative financial product in the money market named asset-backed commercial paper (ABCP). ABCP is a more secured and more liquid form of commercial paper and it was very popular, especially between 2000 and 2006. However, ABCP has risks as well. The ABCP crisis played a significant role during the financial crisis of 2007/2008 and was one of the main reasons for Lehman Brother’s bankruptcy. Thus, investors should not underestimate the risks of ABCP and other related financial products. On the other hand, regulators should think of more strict rules in regulating innovative financial products to ensure a more efficient financial environment.

Section 2 of this paper introduces the functions and significance of money market. Section 3 describes the properties of