The money market is a component of the financial market for assets being used for short-term borrowing of funds by corporate entities and government. It is used by participants as a means for borrowing and lending in short term.
This implies that the money market is used for buying and selling of financial instruments with original maturities with a period of one year. The transaction in money market is carried out over the counter and on wholesale basis.
INSTRUMENTS USED IN MONEY MARKET
- Treasury bills
- Treasury certificates
- Commercial papers
- Banker's acceptance
- Certificates of deposit
- Bill of exchange
- Purchases agreement
- Federal funds
- Short lived Mortgages
- Asset backed security
PARTICIPANTS IN MONEY MARKET
- Central Bank of the country involved
- Commercial Bank
- Investment Bank
- Merchant Bank
- Insurance company
- Corporate entities
- Pension funds institutions
- Discount houses
FUNCTIONS OF MONEY MARKET
- Allows government to raise funds to meet current expenditure in their operation.
- Provides facilities for discounting of financial instruments.
- Transfer of funds within the economy for short-term use
- The market facilities operations of the financial system
- Facilities transactions between parties with surplus funds and parties with deficit.
- Helps the corporate entities to raise funds with which to enhance their working capital.
- Allows corporate entities to hedge against failure in meeting requirements of their operational activitIes
- Helps the government in implementing policy through the open market operation.
- Operations in the money market help determine short-term interest rate in the economy.