Basically, the money market is that specific sector of the financial market where all instruments related to finance with very short maturities and a high amount of liquidity are traded. The participants utilize the money market to lend and borrow for a small period of time either for a few days, or a few months less than a year. The money market securities have negotiable certificates of deposits. We realize the Importance of money at a time when there is a slight downturn in the economy, whether it is global, country, regional, or individual. Let’s understand the money market and its importance more clearly.
Who are the participants of the money market?
The main usage of the money market is to use it for lending and burrowing for a brief period of time. These are the major participants of the money market:
# Entity that raises money by selling commercial paper in the market, and investor purchasing certificates of deposits as a safe option to store money for a brief period.
Why money market is a safe option to put the money?
The major reason why a money market is a safe option for holding money is due to the fact that the nature of short securities and maturities is very liquid. Also, there are various risks involved along with the securities which an investor must be very careful. Importance of money market is understood by both government and large organizations that are specially used to fulfill their short-term cash flow needs.
What are money market functions?
Undoubtedly, the money market plays a very important role in the economy–It not only works as a market for short period transactions. That’s why it has become the prime function of the money market to adjust the liquidity of all financial instruments like banks, business corporations, and non-banking investors.
Just have a look at the prime functions of the money market:
# Maintaining a perfect balance between demand and supply for financial transactions that are done for a short period.
# It is the only entity responsible for the growth & development of the economy. They can do it appropriately by making the availability of money in various economy units like the manufacturing industry, agriculture, service sector, etc.
# Assists in the implementation of monetary policies
#Helpful in the formation of capital
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