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LONDON INTERBANK OFFERED RATES (LIBOR): 1.31875% one month; 1.2800% three months; 1.2300% six months; 1.2300% one year. Effective rate for contracts entered into two days from date appearing at top of this column,

EURO INTERBANK OFFERED RATES (EURIBOR): 2.319% one month; 2.235% three months; 2.179% six months; 2.122% one year. Source: Reuters. FOREIGN PRIME RATES: Canada 5.00%; European Central Bank 2.50%; Japan 1.375%; Switzerland 2.25%; Britain 3.75% TREASURY BILLS: Results of the Monday, June 2, 2003, auction of short-term U.S. government bills, sold at a discount from face value in units of $1,000 to $1 million: 1.110% 13 weeks; 1.095% 26 weeks. Tuesday, June 3, 2003 auction: 1.140% 4 weeks.

OVERNIGHT REPURCHASE RATE: 1.22%. Source: Garban Intercapital FREDDIE MAC: Posted yields on 30-year mortgage commitments. Delivery within 30 days 4.68%, 60 days 4.80%, standard conventional fixed-rate mortgages: 2.875%, 2% rate capped one-year adjustable rate mortgages. FANNIE MAE: Posted yields on 30 year mortgage commitments (priced at par) for delivery within 30 days 4.78%, 60 days 4.87% standard conventional fixed-rate mortgages; 3.00% 6/2 rate capped one-year adjustable rate mortgages. Constant Maturity Debt Index: 1.193% three months; 1.119% six months; 1.187% one year MERRILL LYNCH READY ASSETS TRUST: 0.78%. CONSUMER PRICE INDEX: April 183.8, up 2.2% from a year ago. Bureau of Labor Statistics.

Repurchase Agreements. Repurchase agreements, or repos, are effectively short-term loans (usually with a maturity of less than two weeks) in which Treasury bills serve as collateral, an asset that the lender receives if the borrower does not pay back the loan. Repos are made as follows: A large corporation, such as General Motors, may have some idle funds in its bank account, say $1 million, which it would like to lend for a week. GM uses this excess $1 million to buy Treasury bills from a bank, which agrees to repurchase them the next week at a price slightly above GM's purchase price. The effect of this agreement is that GM makes a loan of $1 million to the bank and holds $1 million of the bank's Treasury bills until the bank repurchases the bills to pay off the loan. Repurchase agreements are a fairly recent innovation in financial markets, having been introduced in 1969. They are now an important source of bank funds (over $400 billion). The most important lenders in this market are large corporations.

Federal (Fed) Funds. These are typically overnight loans between banks of their deposits at the Federal Reserve. The federal funds designation is somewhat confusing, because these loans are not made by the federal government or by the Federal Reserve, but rather by banks to other banks. One reason why a bank might borrow in the federal funds market is that it might find it does not have enough deposits at the Fed to meet the amount required by regulators. It can then borrow these deposits from another bank, which transfers them to the borrowing bank using the Fed's wire transfer system. This market is very sensitive to the credit needs of the banks, so the interest rate on these loans, called the federal funds rate, is a closely watched barometer of the tightness of credit market conditions in the banking system and the stance of monetary policy; when it is high, it indicates that the banks are strapped for funds, whereas when it is low, banks' credit needs are low.

Capital Market Capital market instruments are debt and equity instruments with maturities of greater

Instruments than one year. They have far wider price fluctuations than money market instruments and are considered to be fairly risky investments. The principal capital market instruments are listed in Table 2, which shows the amount outstanding at the end of 1970, 1980, 1990, and 2002.

Table 2 Principal Capital Market Instruments

Amount Outstanding ($ billions, end of year)

Table 2 Principal Capital Market Instruments

Amount Outstanding ($ billions, end of year)

Type of Instrument

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