Money Market Instruments 貨幣市場工具

Bank Deposits 銀行存款

Money market instruments fall into two main categories: bank deposits and negotiable short-term debt instruments. They generally have high liquidity and maturities of less than one year. Bank deposits earn their return mainly through interest; demand deposits have no fixed maturity and can be withdrawn under the account terms, while term deposits have an agreed deposit period.

In Hong Kong, institutions conducting the business of taking deposits from the public require authorisation from the Hong Kong Monetary Authority. Authorised institutions comprise licensed banks, restricted licence banks and deposit-taking companies, with different permissions concerning the deposits they may accept. [HKMA: The Three-tier Banking System](https://www.hkma.gov.hk/eng/key-functions/banking/banking-regulatory-and-supervisory-regime/the-three-tier-banking-system)

Demand deposits help meet immediate cash needs, but their interest returns are normally among the lowest across investment assets. Term deposits generally offer higher interest rates in exchange for reduced liquidity; early withdrawal usually involves a substantial penalty under the deposit terms. A sound banking system helps reduce risk, but does not make deposits entirely risk-free.

Negotiable Short-term Debt Instruments 可轉讓短期債務工具

These instruments are issued by governments, banks or large companies, usually mature in less than one year, and generally have low risk and high liquidity. Negotiability means the holder can sell to another investor in the secondary market before maturity; it does not mean the issuer must repay early. Investors with substantial funds may buy directly, while others commonly participate indirectly through money market accounts at financial institutions.

Government bills include US Treasury bills and Hong Kong Exchange Fund Bills, effectively representing short-term lending to the government. Their default risk is normally regarded as extremely low, so their yields are generally below those of comparable instruments. The minimum denomination of Hong Kong Exchange Fund Bills is HK$500,000. [HKMA: Terms of Exchange Fund Bills](https://www.hkma.gov.hk/media/eng/publication-and-research/reference-materials/market-infrasturcture/im_efb_eng_9805.pdf)

Short-term certificates of deposit are transferable fixed-term deposit certificates issued by commercial banks for less than one year, commonly in HK$500,000 or HK$1,000,000 amounts. Their yields generally exceed comparable government bill yields, reflecting higher bank default risk; weaker secondary-market liquidity and tax implications also matter. Commercial papers are unsecured promissory notes issued by highly rated financial and non-financial companies for less than one year, providing a potentially cheaper alternative to bank borrowing. Their returns generally exceed comparable money market rates to compensate for greater default and liquidity risks, but are usually below corporate bond returns.

Most short-term debt instruments are sold at a discount: the purchase price is below face value, which is repaid at maturity, and the difference provides the return. For example, an Exchange Fund Bill with a HK$500,000 face value, a 3.75% annual yield and 182 days (26 weeks) to maturity costs 500,000 ÷ (1 + 0.0375 × 182 ÷ 365) = HK$490,822.30. Holding it to maturity and receiving repayment as agreed produces HK$500,000; 3.75% must not be treated as the return for the 182-day period itself.

Advantages and Disadvantages of Money Market Instruments 貨幣市場工具的利弊

Money market instruments suit temporary cash holdings while longer-term investment decisions are pending. Lower risk and greater liquidity help build an emergency reserve and accumulate funds for a known future purpose, although the instrument must still match the expected withdrawal date.

Principal stability must be understood alongside repayment conditions: withdrawing a deposit under its terms, or holding an instrument to maturity and receiving repayment as agreed, differs from selling at the market price before maturity. Some deposits may have protection, but this does not extend automatically to every money market instrument. Low risk does not mean an unconditional capital guarantee or unchanged purchasing power.

The main drawbacks are low returns, which may fail to keep pace with inflation; changing yields when matured funds are reinvested, creating reinvestment-rate risk; and default risk on non-government issues. Large denominations can also restrict direct participation by smaller investors. High liquidity across the asset class does not mean every instrument can always be converted into cash without cost.

Charges under an investment-linked assurance scheme reduce the amount available for investment or the policy value. When calculating units in a money market investment option, first deduct premium charges as specified in the question, then divide the investible amount by the unit price. If later charges are paid by cancelling units, both the unit holding and policy value fall even when the unit price remains unchanged. [Insurance Authority: Paper V study notes on fees and charges](https://www.ia.org.hk/en/supervision/reg_ins_intermediaries/files/P5_SN_2024_eng.pdf)