Money market is one of the financial markets preferred by the investors for short term loans. It basically meets the short term requirement of borrowers for money and provides liquidity of cash to the lenders. Technically, money market refers to the collection of institutions engaged in the employment of short term funds. In the money market, commercial banks are the most important lenders. The role of the central bank is important as controller of credit

In other words, Money markets are wholesale cash markets through which banks, corporate and government bodies fund short-term deficits and invest short-term surpluses – so-called, liquidity management.

FEATURES OF MONEY MARKET

The distinguishing features of money market are:

1. Constituents of Money Market

Money market, like other markets has three components

  • It has buyers and sellers in the form of borrowers (of loanable funds) and lenders (of loanable funds)
  • The commodity i.e. the items dealt with in the money market are described as short term funds like treasury bills, commercial bills
  • It has price in the form of rate of interest

2. Dealers of Money Market

In the money market, borrowers manage to obtain short term loans and lenders succeed in getting credit worthy borrowers for their surplus money. They supply of short term funds comes from lenders which are central bank, commercial banks and other financial institutions. The demand for short term funds arises from the borrowers comprising of governments, commercial banks, business houses, stock exchange dealers.

3. Heterogeneous market

The money market is one of the homogeneous markets. It rather consists of several sectors and sub sector market which deal with a specific short term credit instruments such as Call Money Market, Acceptance Market and Bill Market.

4. Near money assets

Money is not dealt by money market. It deals with short term near money assets which are relatively liquid and easily marketable.

5. Physical contact not necessary

It is not necessary that the borrowers and lenders should meet personally at a particular place. They can establish direct or indirect contact on telephone, mail, internet etc.

PARTICIPANTS OF MONEY MARKET

  • Commercial Banks
  • Investment Banks
  • Non-Banking Financial Institutions (NBFIs)
  • Leasing companies
  • Insurance companies
  • Islamic Entities
  • Individuals
  • Intermediaries (Brokerage Houses)

INSTRUMENTS OF MONEY MARKET

  • Call Loans
  • Bank Deposit Management (BDM)
  • Term Deposit Receipt (TDR)
  • Clean Placement
  • Government Securities
  • Corporate Bonds
  • Repurchase Agreement
  • Commercial Paper

 


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