Borrowers and Lenders in the Money Market

Who are the principal lenders of funds in the money market? And, who are the principal borrowers? These questions are difficult to answer since the same institutions frequently operate on both sides of the market. For example, a large commercial bank operating in the New York money market, such as Chase Manhattan or manufactures Hanover, will be borrowing short-term funds aggressively in the market through CDs, federal funds, and Eurodollars while simultaneously lending short-term funds to corporations who have temporary cash shortages. Frequently, large nonfinancial corporations borrow millions of dollars on a single day only to come back into the money market later in the week as a lender of funds due to a sudden upsurge in cash receipts. Institutions which typically play both sides of the money market include commercial banks, major nonfinancial corporations, state and local units of government, finance companies, and savings banks. Even the nation‘s central bank, the Federal Reserve System, may be an aggressive supplier of funds to the money market on one day and reserve itself the day following, demanding funds through the sale of securities in the open market. One institution which is virtually always on the demand side of the market, however, is the U.S Treasury, which borrows billions of dollars every week through the issuance of Treasury bills.