A market for short-term financial assets that are the close substitute for money. The money market facilitates the exchange of money in primary and secondary markets in the country.
Money market transactions are generally used for funding the transactions in other markets including government securities market and meeting short-term liquidity mismatches. There are three types of money market, they are
- Overnight Market – The time frame of transactions in the overnight money market is only 1 day.
- Notice Money Market – The time frame of transactions is from 2 days to 14 days.
- Term Money market – The tenor of transactions is 15 days to 1 year.
OBJECTIVES OF MONEY MARKET
- To provide a room for overcoming short-term deficits
- To provide a parking place to employ short-term surplus funds
- To enable the central bank to liquidity and safety of money.
FUNCTIONS OF MONEY MARKET
There are many functions that a money market does and some of them are as follows
# Economic Development
Money market assures the supply of funds, financing is done through discounting of the commercial bills, trade bills with the help of commercial banks, acceptance houses and brokers.
# Profitable Investment
The money market facilitates the commercial banks to park their excess reserves in near money assets to get more profit with less risk.
# Importance for Central Bank
A well-developed money market helps the central bank of the country to successfully implement the monetary policy in the country.
# Mobilization of Funds
Money Market facilitates the mobilization of funds from one sector to another for economic development.
# Savings and Investment
A well-developed money market encourages savings and investments by promoting safety and liquidity of financial assets.