Money Markets

Posted in Finance, Accounting and Economics Terms, Total Reads: 561
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Definition: Money Markets

Financial Markets (Indian) can be classified as:

  1. Money Market
  2. Capital Market
  3. Foreign Exchange Market
  4. Derivatives Market

 

Money Market is a market which is used to raise short term capital (current assets). The instruments issued in the money market have a maturity ranging from days to a maximum of 1 year.

 

Various instruments included in Money Market are Treasury- Bills, commercial paper, certificate of deposits, bills of exchange, re-purchase agreements (called repos). These instruments bear different risks, maturities and values.

 

Short- term instruments are called as ‘paper’. It provides more liquidity.

 

It includes interbank lending through commercial paper and re-purchase agreements.

 

Participants:

  • Corporate
  • Banks
  • Government

 

Money Market is mostly populated by corporates and it is measured on Commercial Paper (CP).

Banks participate through Certificate of Deposit(CD).

Government participate through T-Bills (Treasury Bills), C- Bills (), Certificate of Deposit (CDs).

 

Most popular Money Market Instruments are:

  • Certificate of Deposit
  • Repurchase Agreements
  • Commercial Paper
  • Treasury-Bills
  • Money Funds
  • Asset-backed securities
  • Foreign Exchange Swaps

 

Characteristics of Money Market Instruments are:

  • High Liquidity
  • Short-term maturity
  • Risk are associated

 

Money Market returns are lower than Capital Market returns. Capital Market is used for raising long-term capital.

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