| The Money Market is the financial market for | | | | Treasury bills can be purchased directly and |
| short-term borrowing and lending, usually up | | | | if you fail to acquire that, they can be |
| to a time span of thirteen months. This | | | | acquired through other large financial |
| contrasts with the capital market for | | | | institutions with direct access to these |
| longer-term funds that feature within the | | | | types of markets. |
| Market. | | | | |
| | | | Understanding the Money Market better |
| This is the place where banks lend to and | | | | |
| borrow from each other, short-term financial | | | | There are tons of different instruments |
| instruments, for instance certificates of | | | | within the markets that are offering various |
| deposit or enter into agreements, repurchase | | | | returns at various risks, which is an aspect |
| agreements are taken place. | | | | element within the sections that take a look |
| | | | at the major Money Market instruments. |
| It provides short to medium term liquidity | | | | |
| aspect element within the global financial | | | | Also a better-known place for large |
| system. Money Market derivatives include | | | | institutions and government to manage their |
| forward rate agreements and short-term | | | | short-term cash needs is the Money Market. |
| interest rate futures. | | | | However, individual investors have access to |
| | | | the market through a variety of different |
| The Market is a subsection of the fixed | | | | securities. |
| income market. We usually think of the term | | | | |
| fixed income as being synonymous to bonds. In | | | | These types of markets specialize in debt |
| reality, a bond is just one sort of fixed | | | | securities that mostly mature in less than |
| income security. | | | | one year. These securities are very liquid, |
| | | | and are considered very safe and as a result, |
| The difference between the Money Market and | | | | they often offer a lower return than other |
| the bond market is that the money market | | | | securities. The easiest way for consumers to |
| specializes in very short-term debt | | | | gain access to the Money Market is through a |
| securities that is debts that mature in less | | | | mutual fund. |
| than one year time span. Money investments | | | | |
| can also be termed as the cash investments | | | | Some terms that are used in the this markets |
| because of their short maturities. | | | | are the T-bills, which are short-term |
| | | | government securities that mature in one year |
| Money Market securities are essentially IOUs | | | | or less from their issue date and are |
| issued by governments, financial institutions | | | | considered to be one of the leading safest |
| and large corporations. These instruments are | | | | investments - they do not provide a fantastic |
| very liquid and are considered unusually | | | | return. |
| safe. As they are extremely conservative, | | | | |
| Money Market securities offer significantly | | | | Another term that is used in the Money Market |
| lower returns than most other securities. | | | | is a certificate of deposit, which is a time |
| | | | deposit with a bank. Annual percentage yield |
| Comparing the Money Market with the Stock | | | | takes into account compound interest, annual |
| market | | | | percentage rate does not. Certificate |
| | | | Deposits are safe, but the returns aren't |
| The major difference between the Money Market | | | | wonderful, and your money is tied up for the |
| and the stock market is that most Money | | | | length of the deposit. Commercial paper is an |
| Market securities trade in very high | | | | unsecured, short-term loan issued by a |
| denominations. This, in turn restricts access | | | | corporation. In the Money Market returns are |
| for the individual investor. | | | | higher than T-bills because of the higher |
| | | | default risk. |
| Furthermore, the Money Market is also a | | | | |
| dealer market, which means that firms buy and | | | | The banker's acceptances are negotiable time |
| sell securities in their own accounts, at | | | | draft for financing transactions in goods. |
| their own risk. Comparing this to the stock | | | | They are new in international trade and are |
| market where a broker receives commission to | | | | commonly only available to individuals |
| act as an agent, while the investor takes the | | | | through the funds. |
| risk of holding the stock. | | | | |
| | | | The Eurodollars are U.S. dollar-denominated |
| Another characteristic of a dealer market is | | | | deposit at banks outside of the United |
| the lack of a central trading floor or | | | | States. The average Eurodollar deposit is |
| exchange. Deals are transacted over the phone | | | | very large and the only way for consumers to |
| or through the use of electronic systems. | | | | invest in this market is indirectly through a |
| | | | Money Market fund. |
| These accounts and funds pool together the | | | | |
| assets of thousands of investors in order to | | | | Hence, we can now understand that a Money |
| buy the securities on their behalf. However, | | | | Market can surely make a difference in the |
| some Money Market instruments like the | | | | financial matters of a country. |