Sunday Emmanuel

@sundayemmanuel · 07 Dec 2021

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What is a Money market

The money market can be defined as a market for short-term loans. the market consist of institutions or individuals who either have money to lend or wish to borrow on a short-term basis.
Money market consists of negotiable instruments such as treasury bills, commercial papers. and certificates of deposit. It is used by many participants, including companies, to raise funds by selling commercial papers in the market. Money market is considered a safe place to invest due to the high liquidity of securities.

It has certain risks which investors should be aware of, one of them being default on securities such as commercial papers. Money market consists of various financial institutions and dealers, who seek to borrow or loan securities. It is the best source to invest in liquid assets.


Instruments used in the morney market

Treasury bills:treasury bill is normally issued by the Central Bank of a country, which assist the government to borrow money from the money market on a short-term basis.

Bill of exchange: bill of exchange refers to a promissory note which shows the acknowledgment of indebtedness by a debtor to his creditor and his intention to pay the debts on demand or at an agreed time in the future, normally 90 days.

Call money funds: the call money fund or market is a special arrangement in which the participating institution invests surplus money for their immediate requirement on an overnight basis with the interest and withdrawal on demand. The call money as an advantage of early return and at the same time are withdrawable on demand. It provides a solution to the immediate stock of liquidity pressures in the money market


Institutions involved in the morney market
Institutions involved in the money market include;

1. Central Bank
2. Commercial Banks
3. Acceptance houses
4. Finance houses
5. Discount houses
6. Insurance companies
   
   
   
   Advantages of money market
   
   Provision of finance: money market enables entrepreneurs and investors to raise enough finance through borrowing to run their businesses
   
   Creation of extra income: the money invested in the money market is capable of yielding extra income in form of interest
   
   Promotion of economic development: economic growth and development is enhanced through borrowing from the money market
   
   Ability to recall invested funds: fund invested in the money market is very easy to recall
   
   It enhances savings: the money market provides an opportunity for does having surplus funds to invest thereby enhancing savings.