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Money Market
Economics
University of Calcutta
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MONEY MARKET
The money market is a financial market where short-term financial instruments are traded. These instruments are typically highly liquid and low-risk, and include government securities, certificates of deposit (CDs), commercial paper, treasury bills, and repurchase agreements (repos). The money market is used by governments, financial institutions, and corporations to borrow or lend money for short periods of time, usually ranging from overnight to one year. Transactions in the money market are typically conducted over-the-counter (OTC) and involve large amounts of money. The main participants in the money market include central banks, commercial banks, money market mutual funds, corporations, and government agencies. Central banks play a critical role in the money market by regulating the money supply and providing liquidity to financial institutions. There are several key features of the money market that distinguish it from other financial markets: 1. Short-term instruments: Money market instruments typically have maturities of less than one year. This makes them ideal for investors who need short- term liquidity or for borrowers who need to raise funds for a short period of time.
- Low risk: Money market instruments are considered to be low-risk investments because they are typically issued by highly creditworthy borrowers, such as governments or large corporations.
- High liquidity: Money market instruments are highly liquid, meaning that they can be bought and sold quickly and easily without significantly affecting their market value.
- OTC transactions: Most money market transactions are conducted over-the- counter (OTC), meaning that they are not traded on a centralized exchange. This allows for greater flexibility and customization in the terms of the transaction.
- Regulated by central banks: The money market is heavily regulated by central banks, which play a critical role in maintaining stability and liquidity in the market. Overall, the money market is an important component of the global financial system. It provides a source of short-term funding for businesses and governments, and offers investors a low-risk way to earn a return on their investments. The money market also plays a critical role in the implementation of monetary policy by central banks, which use the market to regulate the money supply and stabilize the economy.
Money Market
Course: Economics
University: University of Calcutta
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