What is the Functions of Money Market? The money market serves as a vital part of the financial system. It helps the government implement policy by setting short-term interest rates in the economy. It also facilitates trade and promotes economic development by providing funds to a variety of sectors. The money market is a vital source of funds for many businesses, and individuals are willing to lend funds to businesses that need them. Here are the Functions of Money Market
A bill of exchange, also called a trade bill, is a type of note that functions much like a promissory note. The bank that issues the bill of exchange must have sufficient funds to pay the debt. Often, a broker or bank must obtain these funds from large corporations or the central bank in order to complete the transaction. The money market is also connected to the bill market, which is a short-term loan market. It is operated by discount houses, brokers, and commercial banks, as well as government-issued treasury bills.
In addition to these functions, the money market also serves as a convenient vehicle for short-term fund transfers. It helps issuers raise funds and investors use their excess funds for investment. It also helps commercial banks raise funds from investors, allowing them to become self-sufficient. It also helps develop the capital market and regulate the liquidity in an economy. In short, the money market provides a safe, convenient, and flexible way to transfer funds across sectors.
The Money Market operates under the Reserve Bank of India’s definition of a financial market. In the Indian context, it includes the primary and secondary markets in which investors and institutions trade in short-term debt securities. The Money Market is composed of a variety of smaller markets. The transactions in the Money Market take place through written and oral communications between institutions. Money Market institutions include Commercial Banks, Non-Banking Finance Corporations, and Acceptance houses.
A key component of the financial system, the money market facilitates lending and borrowing of short-term funds. The instruments of the money market include federal funds, commercial paper, and short-term mortgage-backed securities. These instruments enable companies and governments to quickly acquire cash and meet their short-term liquidity needs. It also allows investors to borrow small amounts of money. So, the Money Market is an essential component of any economy. If you’re interested in learning more about it, check out the article below.