Money Market: Functions, Participants And Instruments Used In Money Market

Money Market: Functions, Participants And Instruments Used In Money Market
MONEY

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.

ALSO READ: Company Fixed Deposit: Meaning, Advantages and Disadvantages

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.

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