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Saturday, 23 January 2021

Money Market Research by Business Development, Vendors Analysis with Study of Economy, Individual Investment

Money Market Research by Business Development, Vendors Analysis with Study of Economy, Individual Investment

                      *Money Market Overview*

Financial markets typically refer to any marketplace where shares are traded for the smooth running of capitalist economies. There are many sub-categories of the financial market, such as the spot market, the capital market, the commodity market, the derivatives market, and the foreign exchange market.  Another sub-sector where most institutional investors are not conscious of is the Money Market.

A sector of the economy that provides short-term funds is called the Money Market. The securities market is concerned with short-term lending, normally for one year or less. The money market became a segment of the financial market for assets used in buying and selling, lending, short-term borrowing with an original maturity of one year or less, as money has become a commodity.

The concept of the money market is trading in the financial market for very short-term debt instruments which are characterized by a high level of security and a relatively low-interest return on investment. Trading is done over the counter and is wholesale in the Money Market. The securities market is a market with short-term maturities for up to 1 year. It is made up of banks, non-banking financial companies, and acceptance houses.

Money Market Instruments :

Financial instruments with a short-term period of up to 1 year which are used by the issuer as tools to raise capital are known as money market instruments. These are debt securities that give a fixed rate of interest are normally unsecured. The security has no collateral backing, and the possibility of non-repayment is theoretically high.

Money market instruments have a high credit rating that means that issuers do not default, allowing them a way for investors looking for short-term alternatives to deposit their money and receive guaranteed returns on the same.

Characteristics of Money Market Instruments :

 > High Liquidity

One of the main characteristics of these financial instruments is that they provide high liquidity. They generate fixed revenue for the lender and make them extremely liquid with short-term maturity.

Secure Investment

One of the most secure investment opportunities available in the market is these financial instruments. The chance of losing the investment capital is negligible because issuers of money market instruments have a high credit rating and the returns are guaranteed

> Fixed  Returns

These financial instruments are one of the most stable trading opportunities present in the industry. The risk of losing investment capital is negligible since there is a high credit rating for issuers of money market instruments and rewards are assured.

Money Market Instruments: Types :

Examples of Money Market Instrument includes :

> Commercial Papers

> Certificates of Deposits (CD)

> Banker’s Acceptance

> Repurchase Agreements

> Treasury Bills (T-Bills)

> Promissory Note

> Inter-bank Term Market

> Call and Notice Money

The necessity of Money Market :

Use of Additional Funds :

The Money Market makes it possible for investors to manage their unused funds, to maintain their liquidity, and to make substantial gains on them. It makes savings in investment channels simpler for investors. Non-financial corporations, banks, and local and state governments are among the investors.

> Delivers Funds at a Short Notice :

The Money Market gives banks, people, small and large corporations, an opportunity to borrow money at very short notice. By offering money market instruments, these entities can borrow money to fund their short-term requirements.

Instead of borrowing from banks, it is easier for institutions to obtain money from the market, as the process is hassle-free and the interest rate of these investments is lower than that of commercial loans. These money market instruments are used by commercial banks to preserve the minimum cash reserve ratio.

Keeps Liquidity in the Market :

 The tools in the money market are an essential part of the system for monetary policy.  To gain market liquidity within the expected ranges RBI uses these short-term securities.

> Helps in monetary policy  :

A known money market assists RBI to enforce monetary policies effectively. Money market transactions have an impact on short-term interest rates, and short-term interest rates provide an outline of the country's actual monetary and banking condition. This allows RBI to devise potential monetary policy, to assess long-term interest rates, and to make effective banking policy decisions.

Helps in Financial Mobility :

The Money Market contributes to financial mobility by encouraging funds to be quickly moved from one business to another. This assures accountability in the system, high financial mobility, through the promotion of industrial and commercial development, which is important to the overall growth of the economy.

> Balance between Demand and Supply of Funds :

By allocating savings through investment channels, the money market brings an equilibrium between the demand and supply of loanable funds.

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