Understanding the Mechanics of Money Market

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A money market is a market for borrowing and lending of short-term funds. It deals in funds and financial instruments having a maturity period of one day to one year. It refers to the whole networks of financial institutions dealing in short-term funds, which provides an outlet to lenders and a source of supply for such funds to borrowers. In other words, it meets the short-term requirements of the borrowers and provides liquidity of cash to the lenders. It is a mechanism through which short-term funds are loaned or borrowed and through which a large part of financial transactions of a particular country or of the world are cleared. It is different from stock market. It is not a single market but a collection of markets for several instruments …show more content…

A Central Bank: A developed money market consist of a central banks as the most powerful authority in monetary and banking matter at the top. It controls, regulates and guides the entire money market and also provides liquidity because it is the lender of the last resort to the various constituents of the money market. 2. Organised Banking System: An organised and integrated banking system is the second feature of a developed money market. In fact, it is the pivot around which the whole money market revolves. It is the commercial banks which supply short-term loans, discount bills of exchange and act as a link between the borrowers, brokers, discount houses and acceptance houses and the central bank in the money market. 3. Specialised Sub-Markets: A developed money market consists of a number of specialised sub-markets dealing in various types of credit instruments. There is the Treasury bill market, call loan market, the bill market, the foreign exchange market, the collateral loan market and the acceptance market. If there are large numbers of sub-markets are present then money market is termed as developed one. Also, it is important that the various sub-markets should have a number of dealers and it should be integrated with each

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