Dealing in fixed-income debt securities having maturities of less than a year is referred to as taking part in the money market. This article will discuss the definition of money market instruments as well as their varieties and goals. We will also discuss the features of money market today.
Money Market: What is it?
So, what are money markets? Short-term financial assets with one year or less liquidity can be exchanged on stock exchanges in the money market. Securities or bills that are traded are very liquid. They also make it easier for the participant’s short-term financing requirements through bill trading. Banks, significant institutional investors, and retail investors are frequent players in this financial sector.
Goals of the Money Market
RBI governs the money market. The following are the objectives of money market:
- Providing affordable short-term financing to borrowers like the government and individual investors.
- It also helps lenders to invest their idle funds effectively.
- Considering that most businesses lack the necessary working cash, money market helps businesses.
- It is a significant funding source for domestic and foreign trade in the public sector.
Money Market Instruments: What are they?
Money market instruments are financial tools that help organisations, corporations, and governments raise short-term loans for their needs. Lenders benefit from interest rates and liquidity, and borrowers can reasonably meet their immediate demands. Bonds, Treasury bills, CDs, commercial paper, etc., are examples of money market instruments.
Benefits of the Money Market
Below are the benefits and features of money market:
- It might be a market collection. Liquidity is its key quality. All submarkets are interconnected. This makes it easier for capital to move across different submarkets.
- A large number of assets are traded daily.
- It helps borrowers meet their short-term financial needs. Additionally, it deals with investments having maturities of one year or less.
- It continues to change.
A money market is where people or businesses can quickly obtain short-term financing. Despite the money market’s high level of liquidity, you won’t earn little in the way of interest. The risk is minimal in the money market, where the deals are paid within a year.