In the summary of chapter 13 under "Investment and risk characteristics of money market instruments" is says: normally good security as term very short, but will depend on the borrower. Should this read: normally good security as term very short, but will depend on the lender? If not, please can someone explain it to me? Thanks
It should be borrower. The borrower is the one who issues the money market instrument. The lender is the one who buys it. So it is the borrower who may default. Eg a local authority issues a bill that will pay £100 in 3 months' time. The local authority is the borrower and there is a risk to the investor that the local authority defaults on the £100. Similarly, an investor deposits money with a bank. The bank is the borrower. There is a risk to the investor that the bank does not pay interest or refuses to repay the money deposited.
