thrifts, and credit unions), insurance companies, and investment banks. These institutions are simultaneously among the biggest buyers and issuers of money markets instruments. Moreover, there are certain short-term debt instruments peculiar to financial institutions such as certificates of depos- its, federal funds, bankers acceptances, and funding agreements. These instruments are the focus of this chapter.       LARGE-DENOMINATION NEGOTIABLE CDS   A certificate of deposit (CD) is a financial asset issued by a depository insti- tution that indicates a specified sum of money that has been deposited with them. Depository institutions issue CDs to raise funds for financing their business activities. A CD bears a maturity date and a specified interest rate or floating-rate formula. While CDs can be issued in any denomination, only CDs in amounts of $100,000 or less are insured by the Federal Deposit Insurance Corporation. There is no limit on the maximum matu- rity but Federal Reserve regulations stipulate that CDs cannot have a maturity of less than seven days. A CD may be either nonnegotiable or negotiable. If nonnegotiable, the initial depositor must wait until the CDs maturity date for the return of their deposits plus interest. An early withdrawal penalty is imposed if the depositor chooses to withdraw the funds prior to the maturity date. In con- trast, a negotiable CD allows the initial depositor (or any subsequent owner oftheCD)tosell the CD in the open market prior to the maturity date.   85     Negotiable CDs were introduced in the United States in the early 1960s. At that time the interest rates banks could pay on various types of deposits were subject to ceilings administered by the Federal Reserve (except for demand deposits defined as deposits of less than one month that could pay no interest). For complex historical reasons and misguided political ones, these ceiling rates started very low, rose with maturity, and remained at below market rates up to some fairly long maturity. Before the introduction of the negotiable CD, those with money to invest for, say, one month had no incentive to deposit it with a bank, for they would earn a below-market rate unless they were prepared to tie up their capital for an extended period of time. With the advent of the negotiable CD, bank customers could buy a three-month or longer negotiable CD yield- ing a market interest rate and recoup all or more than their investment