Why You May Need The Money Markets

Briefly the Money markets are unorganised markets. Financial institutions, banks, brokers and money dealers trade for a short period. T Bills, commercial paper, certificate of deposit, trade credit, bills of exchange, promissory notes, call money, etc. are some of the examples of money market instruments.

The money market is an organized exchange market where participants can lend and borrow short-term, high-quality debt securities with average maturities of one year or less. It enables governments, banks, and other large institutions to sell short-term securities to fund their short-term cash flow needs.

At the wholesale level, it involves large-volume trades between institutions and traders. At the retail level, it includes money market mutual funds bought by individual investors and money market accounts opened by bank customers.

An individual may invest in the money market by purchasing a money market mutual fund, buying a Treasury bill, or opening a money market account at a bank.
Money market investments are characterized by safety and liquidity, with money market fund shares targeted at $1.

There are several money market instruments in most Western countries, including treasury bills, commercial paper, banker’s acceptances, deposits, certificates of deposit, bills of exchange, repurchase agreements, federal funds, and short-lived mortgage- and asset-backed securities.The instruments bear differing maturities, currencies, credit risks, and structures.

The four most relevant types of money are commodity money, fiat money, fiduciary money (cheques, banknotes), and commercial bank money. Commodity money relies on intrinsically valuable commodities that act as a medium of exchange. Fiat money, on the other hand, gets its value from a government order.

Money markets serve five main functions and namely—to finance trade, finance industry, invest profitably, enhance commercial banks’ self-sufficiency, and lubricate central bank policies.

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