What does breaking the buck mean

Reference no: EM131305019

1. Small savers can usually receive a higher interest rate from money market mutual funds than from bank savings accounts. So, how are banks able to attract small savers?

2. Financial journalist David Wessel has described what happened with the Reserve Primary Fund, a money market mutual fund, on September 16, 2008: At 4:15 P.M., the fund issued a press release. The Lehman paper in its portfolio was worthless and the fund's shares were worth not $1, but only 97 cents: breaking the buck. The news triggered a run that spread through the $3.4 trillion [money market mutual fund] industry.

a. What is "Lehman paper"? Why was the Lehman paper in the fund's portfolio worthless?

b. What does "breaking the buck" mean? Why was it significant to the financial system?

c. What is a "run"? Why would one money market fund having broken the buck cause a run on other money market funds?

Reference no: EM131305019

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