Money Market

Money Market is a market for short term funds which deals in monetary assets whose period of maturity is upto one year. Money market constitutes a major source of working capital for business. It is a market in liquid assets. Funds borrowed against different types of credit instruments such as bills of exchange, short-term securities, promissory notes and treasury bills drawn for a short period, etc., are called near money. The term near money means short-term securities or assets which could be encashed in a short period of time. These assets are close substitutes for money. Thus, the term money market may sound misleading as it does not deal in cash or money but in near money assets.

The dealers in the money market consist of the Government, banks, commercial and industrial concerns, stock exchange brokers, dealers in Government and other securities, merchants, manufacturers etc.

Money market plays an important role in the economy of any country in the following ways:

(i) Money market is an important source of financing trade and industry through commercial bills, commercial papars, etc.

(ii) It provides funds for both internal and international trade.

(iii) It helps the lenders to earn on their idle or surplus funds for short periods.

(iv) It allows the government to raise funds from the investors and commercial banks.

(v) The government can check inflationary trend by issuing documents and decreasing liuidity in the call money market.

(vI) Money market facilitates implementation of the monetary policy of the country’s central banks.