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Money Market Rates

Money market rates are integral to the exchange of financial instruments in the money market.  The money market is a global finance market for short-term lending and borrowing of money.  The persons and institutions involved in money market lending and borrowing generally deal with investments having a lifetime less than thirteen months.  The majority of the money market players are lending and banking institutions that borrow and lend funds from one another. Besides banking institutions, some large corporations with high credit rating also may wish to issue their own commercial paper.  Other organizations wishing to participate in the money market will be retail establishments and other institutions wishing to have a liquid form of assets in which to borrow or lend. 

Commonly traded money market commodities, papers, and other financial instruments include:

• Treasury bills
• Money market mutual funds
• Federal funds
• Municipal funds
• Commercial paper
• Certificate of deposit
• Repurchase agreements
• Banker’s acceptances

The rates of borrowing and lending of the financial instruments is heavily dependent on several factors.  These factors include the financial instrument being exchanged, the duration of the exchange, the principal amount of money invested or lent, and current economic situations throughout the globe.  For example, the federal funds rate determines the money market rate of borrowing or lending federal funds.  Currently, the federal funds rate is four and a half percent.  Of course, pending economic and government occurrences can cause this number to rise or fall.  In general, a money market investment is simply a low-risk investment for a wide range of individuals and organizations, and involved in the security of this low risk, comes the lack of a large yield of rate return possibility.

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