increase the amount of funds raised in the money market. It also ushered in a new era of competition among depository institutions. There are two types of negotiable CDs. The first is the large-denomination CD, usually issued in denominations of $1 million or more. The second type is the small-denomi- nation CDs (less than $100,000) which is a retail-oriented product. Our focus here is on the large-denomination negotiable CD with maturities of one year or less and we refer to them as simply CDs throughout the chapter. The largest group of CD investors is investment companies, with money market mutual funds purchasing the lions share. Coming in a distant sec- ond are banks/bank trust departments followed by municipal entities and corporations. One indicator of the size of the market available to these investors is the Federal Reserve Board data series of large time deposits. Exhibit 6.1 presents a time series plot of the amount of large time deposits outstanding (in billions of dollars) each year for the period 1980-2000.   CD Issuers CDs whose cash flows are denominated in U.S. dollars can be classified into four types according to the issuing institution. First are the CDs issued by domestic banks. Second are CDs that are denominated in U.S. dollars but are issued outside the United States. These CDs are called Eurodollar CDs or Euro CDs. A third type of CD is called a Yankee CD which is a CD denominated in U.S. dollars and issued by a non-U.S. bank with a branch in the United States. Finally, thrift CDs are those issued by savings and loans and savings banks. Money center banks and large regional banks are the primary issuers of domestic CDs. Most CDs are issued with a maturity of less than one year. Those issued with a maturity greater than one year are called term CDs.       Unlike the discount instruments discussed in this book (e.g., Treasury bills, commercial paper, and bankers acceptances), yields on domestic CDs are quoted on an interest-bearing basis. CDs with a maturity of one year or less pay interest at maturity (i.e., simple interest). The day count convention is Actual/360. Domestic CDs issued in the United Kingdom denominated in pounds are quoted the same way except the day count convention is Actual/365. Eurodollar CDs are U.S. dollar-denominated CDs issued primarily in London by U.S., Canadian, European, and Japanese banks. The CDs earn a fixed rate of interest related to dollar LIBOR. The term LIBOR comes from the London Interbank Offered Rate and is the interest rate at which one London bank offers funds to another London bank of acceptable credit quality in the form of a cash deposit. The rate is "fixed" by the British Bankers Association every business morning (in practice the fix is