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Money Markets

The money market is a worldwide financial market for the short-term borrowing and lending of financial instruments.  The money market allows liquid assets to be made available for any player in the global financial market.  These players are a made up from a huge number of banks, governments, commercial and retail businesses, individuals, and investing companies.  The investors in money markets borrow and lend financial instruments for a period no more than thirteen months.  The short-term investments money market players usually deal with are referred to as “papers”.  The vast majority of this market is made up of banks lending and borrowing papers from one another.

Besides banking institutions, others involved in money markets include retail businesses, governments, municipalities, trading companies, individuals, investing firms, and corporations.  The trading of these short-term financial instruments occurs with the aid of banks in the money center cities.  These money center cities are New York, London, Tokyo, and Greenwich.

Commonly traded money market instruments include:

• Eurodollar deposits
• Banker’s acceptance notes
• Certificate of deposit
• Money market mutual funds
• Municipal notes
• Treasury bills
• Federal funds
• Repurchase agreements

The financial instruments typically transacted in the money market are various yet share several distinct similarities.  First, all the borrowing and lending is done on a short-term basis.  Secondly, these money market investments are seen as low-risk, low-yield investments.  Generally, money markets accounts facilitate a liquid asset management plan while still incurring some financial gain.

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