For those who are not native speakers of money market jargon, the federal funds and Eurodollar deposit markets are very similar: They are wholesale funds taken in by banks, with definitional differences that I’ll leave to the footnotes to my speech.31 Just this past October, following amendments to the FR 2420 collection, we began to receive trade-level data for the bulk of activity in the Eurodollar market.32 The Eurodollar market is considerably larger than the federal funds market. According to FR 2420 data, on average in the last two months of 2015 there was $ billion of overnight borrowing in the Eurodollar market; in contrast, over that same period, there was $ billion overnight borrowing in the federal funds market.33 I’ll show some data on the composition of activity in these markets a bit later, but it’s worthwhile noting that many of the Desk’s nonbank counterparties, such as the money funds, are active lenders in the Eurodollar market. We observed a similar response in yields in the Eurodollar market as we did in the federal funds market, with the distribution of traded rates making a parallel shift upward of about 25 basis points, as shown in Figure 4. Since liftoff, the overnight Eurodollar volume-weighted mean rate as calculated from FR 2420 data, as seen in Figure 5, has averaged about 35 basis points.34 This is in line with the effective federal funds rate. The volume-weighted median, also shown in the figure, moved upward by a like amount.
While financial consumers now have a greater array of choice, the challenge is in choosing the most appropriate financial product commensurate to their needs. Lessons learned from other markets showed that high-profile cases of mis-selling of investment-linked and pension products extols the importance of ensuring consumers are properly adviced on the key features, terms, conditions and suitability of a financial product before they enter into any financial contract. Assisting consumers to make wise financial choices As FAs, you have the responsibility to educate consumers on the importance of financial planning, such as saving for the first home or a child’s future education, or buying insurance protection to safeguard against unexpected losses. FAs can assist consumers in better understanding their current and future financial needs and circumstances. FAs can provide independent and impartial advice which is tailored to the consumers risk appetite and financial needs. Apart from educating their clients on what they should be investing in, FAs also play an important role in educating their clients on what they should not be investing in. As you are the industry’s front-liners and are actively meeting with potential customers on a daily basis, FAs can be relied on as a key source of information to prevent consumers from falling prey to financial scams.