Money Market is a financial market in which only short-term debt instruments (generally those with an original maturity of less than one year) are traded. It enables people in need of liquidity to trade, invest and borrow short-term debts and assets which can be dealt with within a year or less than a year.
Firms or individuals who need short-term maturities and cash flows or want to invest for earning interest in a low-risk system are the most common ones who frequently make transactions through these markets.
This market has several functions that benefit organizations, companies and individuals. It allows people to invest and buy maturities, mutual funds etc. instruments to earn extra. These are people who don't need the carry-over money in their hands.
On the other hand, it is also favorable for large corporations, banks and other individuals who have fewer cash flows and face liquidity crises very often can easily borrow a range of securities like treasury bills, bankers' acceptance, bills of exchange which can be turned into cash in no time, thus creating a short-term borrowing and lending monetary system.
Examples of Money Market Securities
There are many types of securities and instruments that are most used in this market and the major ones are-
- Treasury bills
- Certificate of deposit
- Commercial paper
- Bankers' acceptance
- Repurchase agreement
- Credit card receivables
- Commercial mortgage loans
Another market that is easy to get confused with the money market is the capital market. Long-term securities are the concern of the capital market whereas the money market deals with the securities with shorter terms and withdrawing money from them takes less time.
Use of the Term in Sentences
- Some disadvantages of money markets may include a lower rate of interest and transaction cost.