Money market

Definition

Money markets are financial markets for short-term borrowing and lending, typically with maturities of one year or less. They provide liquidity for the global financial system by enabling institutions to manage their short-term funding needs efficiently.

5 Must Know Facts For Your Next Test

1. Money market instruments include Treasury bills, commercial paper, and certificates of deposit.
2. The primary purpose of money markets is to facilitate the transfer of short-term funds between entities.
3. Interest rates in money markets are generally lower than those in capital markets due to the shorter maturity periods.
4. Money markets play a crucial role in maintaining liquidity in the financial system and managing cash flow for businesses and governments.
5. Participants in money markets include banks, corporations, government agencies, and individual investors.

Review Questions

• What types of instruments are commonly traded in money markets?
• Why are interest rates generally lower in money markets compared to capital markets?
• Who are the primary participants in money markets?

Related terms

Treasury Bills: Short-term government securities with maturities ranging from a few days to one year.

Commercial Paper: Unsecured promissory notes issued by companies with maturities typically less than 270 days.

Certificates of Deposit (CDs): Time deposits offered by banks with fixed interest rates and specified maturity dates.