Monday, August 31, 2009

Characteristics of the money market

The money market, like all financial markets, provides a channel for the exchange of financial assets for money. However, it differs from other parts of the financial system in its emphasis upon loans to meet purely short-term cash needs. The money market is the mechanism trough which holders of temporary cash surplus meet holders of temporary cash deficits. it is designed, on the one hand, to meet the short-run cash requirements of corporations, financial institutions, and governments, providing a mechanism for granting loans as short as overnight and as long as one year to maturity. At the same time, the money market provides an investment outlet for those spending units (also principally corporations, financial institutions, and governments) who hold surplus cash for short periods of time and wish to earn at least some return on temporarily idle funds. The essential function of the money market, of course, is to bring these two group into contact with each other in order to make borrowing and lending possible.

No comments: