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Negotiable
Financial Instruments > This page
THE
MONEY MARKET
(Source:
Timothy Q. Cook and Robert K. LaRoche)
The
need for a money market
General
characteristics of money market instruments
The major participants in the
money market (Member section)
Commercial Banks (Member
section)
Federal Reserve discount
window (Member section)
Negotiable certificates of deposit (CDs)
and Eurodollar market (Member
section)
Repurchase Agreement (RDs) (Member
section)
Governments (Member
section)
Corporations (Member
section)
Government-Sponsored Enterprises (Member
section)
Money Market Mutual Funds and Other Short-Term Investment Pools (Member
section)
Futures Exchanges (Member
section)
Dealers and Brokers (Member
section)
Federal Reserve (Member section)
The
major purpose of financial markets is to transfer funds from lenders to
borrowers. Participants in the financial market commonly distinguish
between the "capital market"
and the "money market,"
with the latter term generally referring to borrowing and lending for
periods of a year or less. The United States money market is very efficient
in that it enables large sums of money to be transferred quickly and at
a low cost from one economic unit (business, government, bank, etc.) to
another for relatively short periods of time.
The
need for a money market
The need for a money market arises because receipts of economic units
do not coincide with their expenditures. These units can hold money balances
to insure that planned expenditures can be maintained independently of
cash receipts (that is, transactions balances in the form of currency,
demand deposits, or NOW accounts).
There are however, a cost in the form of foregone interest involved, by
holding these balances. To enable the economic units to minimize this
cost, they usually seek to hold the minimum money balances required for
day-to-day transactions. They supplement these balances with holdings
of money market instruments. The advantages of money market instruments
are: that it can be converted to cash quickly and at a relatively
low cost, and it have low price risk due to their short maturities.
Economic units can also meet their short-term cash demands by maintaining
access to the money market and raising funds there when required.
General
characteristics of money market instruments (more
info)
There is a high degree of safety
of principal. They are most commonly issued in units of $1 million
or more.
Maturities range from one day to one year; the most common are three months
or less.
Most of the instruments can be sold prior to maturity due to active secondary
markets.
The money market has no specific .....................
More
information is provided in the Member Area
Recommended
further reading:
Behind
the Money Market: Clearing and Settling Money Market Instruments
Definition of American Depositary Share (ADS)
Portfolio Collateralization
Repurchase and Reverse Repurchase
Agreements
Understanding
Financial Markets & Instruments
Books on Financial
Instruments
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