Money Market

Made by:-
Faraz and Khushal

Introduction to the
Money Market
Money market basically refers to a

selection of the financial markets
where financial instruments with high
liquidity and short term maturities are
traded.
Money market has become a
component of financial market for
buying and selling of securities of
short term maturities, one year or
less, such as treasury bills and
commercial papers.
Importance of money market
1. Financing Trade: The money market plays an important role in financing both
internal as well as international trade. Commercial finance is made available to the
trader through bills of exchange, which are discounted by the bill market.
2. Financing industry: The money market helps in securing short-term loans to meet
their working capital requirements through the system of finance bills, commercial
papers, etc.
3. Profitable investment: The money market enables commercial banks to use their
excess reserves in profitable investments.
4. Self-sufficiency of commercial banks: A developed money market helps commercial
banks to become self sufficient.
5. Help the central bank: it helps to improve the functioning and efficiency of the
central bank. example, the central bank can conduct open market operations in the
money market to influence interest rates and control the money supply. Buying or
selling government securities in the money market allows the central bank to adjust
liquidity, impacting short-term interest rates and, consequently, overall economic
conditions.
Functions of Money market
1. Liquidity Provision: Money market instruments offer high liquidity, allowing participants
to quickly convert their assets into cash without significant price fluctuations.
2. Short-Term Borrowing and Lending: Financial institutions, corporations, and governments
engage in short-term borrowing and lending to meet their immediate funding requirements.
3. Risk Management: Money market instruments are low-risk assets, providing a safe haven
for investors looking to manage risk and preserve capital.
4. Government Funding: Governments issue short-term securities, like Treasury bills, in the
money market to meet financing needs, attracting a diverse range of investors seeking safety.
5. Financing Trade and Working Capital: Money market instruments support businesses in
financing short-term needs, such as managing working capital and facilitating international
trade transactions.
Types of money market
1. Treasury Bills (T-Bills):
1) Issued by the Reserve Bank of India (RBI) on behalf of the Government of India.
2) Maturities range from 91 days, 182 days, and 364 days.
3) Highly liquid and considered risk-free.
2. Commercial Paper (CP):
1) Short-term unsecured promissory notes issued by corporations to raise funds.
2) Maturities typically range from 7 days to 1 year.
3)Regulated by the Securities and Exchange Board of India (SEBI).
3. Certificates of Deposit (CDs):
1)Time deposits issued by scheduled commercial banks and select financial institutions
2)Maturities vary from 7 days to 1 year.
3)Subject to reserve requirements set by the RBI.
4. Commercial Bills:
1)Short-term debt instruments issued by corporations for financing immediate needs.
2)Maturities range up to 90 days.
Important intermediaries in money market
Commercial Banks: Commercial banks are key participants in the money market. They engage
in short-term borrowing and lending with other banks and financial institutions, and they often
serve as intermediaries for businesses and individuals in the money market. Ex: JPMorgan
Chase, Bank of America, HSBC..
Central Banks: Central banks, such as the Federal Reserve in the United States or the European
Central Bank, play a significant role in the money market. They conduct open market
operations, influencing the money supply and short-term interest rates to implement monetary
policy. Ex: Federal Reserve (United States), European Central Bank (Eurozone)
Finance Companies: Finance companies raise short-term funds in the money market to finance
their lending activities. They often issue commercial paper as a means of obtaining short-term
funding. Example: GE Capital, Toyota Financial Services.
Brokerage Firms: Brokerage firms facilitate transactions in the money market by connecting
buyers and sellers. They may also provide research and advisory services related to money
market instruments. Example: TD Ameritrade
Investment Banks: Investment banks participate in the money market by
underwriting and trading short-term debt securities. They may also engage in
repurchase agreements and other money market transactions.
Example: Goldman Sachs, Morgan Stanley
Clearing Houses: Clearing houses act as intermediaries to facilitate the settlement

of trades in the money market. They ensure the efficient transfer of funds and
securities between buyers and sellers. Example: The Depository Trust & Clearing
Corporation
Primary Dealers: In some countries, central banks designate certain financial

institutions as primary dealers. These institutions participate in the open market
operations conducted by the central bank and help in the distribution of
government securities. Example: institutions like JPMorgan Securities
These intermediaries collectively contribute to the liquidity, efficiency, and stability

of the money market, allowing for the smooth functioning of short-term borrowing
and lending activities.

Money Market

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Money Market

Uploaded by

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Available Formats

Made by:-

Faraz and Khushal

Money market basically refers to a

Clearing Houses: Clearing houses act as intermediaries to facilitate the settlement

Primary Dealers: In some countries, central banks designate certain financial

These intermediaries collectively contribute to the liquidity, efficiency, and stability

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