What Is Money Market ?
Money market refers to a financial market where highly liquid short-term financial instruments such as T-Bills, CDs, repurchase agreements, commercial papers etc. are traded. It helps the business institutions or government to manage cash flow that ensures liquidity and stability.
Features Of Money Market: A Guide For Investors
The main characteristics or features of money market can be highlighted as follows:
1. Short Maturity Period
Money market involves in the buying and selling of securities having short maturity period (one year or less).
2. Purpose
It helps to fulfill the short term financial requirements of the firm such as working capital and operating expenses
3. Wide Range Of Instruments
Money market deals with variety of credit instruments such as call money, commercial papers, treasury bills etc. .
4. Level Of Risk
It is less riskier than capital market because of short maturity period and issued by stable and highly rated institutions and government.
5. Operating Institutions
Banks, discount houses and other financial institutions operate the money market.
6. Liquidity
Money market deals with liquid investment. Instruments can be bought or sold in the secondary market easily without any complication.
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7. Safety
Because of short maturity period and low level of risk, it is more safe than capital market.
8. Regulation
It is regulated by the central bank.
9. Predictable Returns
Generally financial instruments offer fixed rate of instruments so returns are predictable in money market.