What happens to a shadow price if an issuer defaults on a securities held by the fund?
The effect of a default on a fund’s shadow price depends on the size of the fund’s holding and the severity of the decline in the market values of the defaulted securities. For example, a default in a security that comprises 1.25 percent of a fund’s assets can reduce the fund’s per-share market value to $0.9950 or below if the default reduces the security’s value by 40 percent or more (to 60 cents or less on the dollar). To maintain minimal credit risk, money market fund managers work hard to diversify and monitor the credit quality of their portfolios in order to avoid holding securities that may end up defaulting.
Related Questions
- How much of my money market fund is insured? What happens if the number of shares held in my account increases or decreases after the close of business on September 19, 2008?
- What happens if a fund’s shadow price rises above $1.0050 or falls below $0.9950?
- How are the values of the securities which are held in each fund determined?
