Understanding the Mechanics of Money Market

2430 Words5 Pages
bulb-icon

Recommended: The roles of money market

A money market is a market for borrowing and lending of short-term funds. It deals in funds and financial instruments having a maturity period of one day to one year. It refers to the whole networks of financial institutions dealing in short-term funds, which provides an outlet to lenders and a source of supply for such funds to borrowers. In other words, it meets the short-term requirements of the borrowers and provides liquidity of cash to the lenders. It is a mechanism through which short-term funds are loaned or borrowed and through which a large part of financial transactions of a particular country or of the world are cleared. It is different from stock market. It is not a single market but a collection of markets for several instruments …show more content…

A Central Bank: A developed money market consist of a central banks as the most powerful authority in monetary and banking matter at the top. It controls, regulates and guides the entire money market and also provides liquidity because it is the lender of the last resort to the various constituents of the money market. 2. Organised Banking System: An organised and integrated banking system is the second feature of a developed money market. In fact, it is the pivot around which the whole money market revolves. It is the commercial banks which supply short-term loans, discount bills of exchange and act as a link between the borrowers, brokers, discount houses and acceptance houses and the central bank in the money market. 3. Specialised Sub-Markets: A developed money market consists of a number of specialised sub-markets dealing in various types of credit instruments. There is the Treasury bill market, call loan market, the bill market, the foreign exchange market, the collateral loan market and the acceptance market. If there are large numbers of sub-markets are present then money market is termed as developed one. Also, it is important that the various sub-markets should have a number of dealers and it should be integrated with each

Show More
Related

  • The Federal Reserve and Macroeconomic Factors

    1460 Words  | 3 Pages

    The Federal Reserve The Federal Reserve uses three main tools in order to control the money supply. The first tool is open market operations. These operations consist of the buying and selling of government bonds to commercial banks and the public. Open-market operations are the most important tool that the Fed can use to influence the money supply (Brue, 2004, p. 252).

    Read More

  • Exploring the Intricacies of Monetary Policy

    713 Words  | 2 Pages

    Open market operations directly affect the money supply through buying short-term government bonds (to expand money supply) or selling them (to contract it). Benchmark interest rates, such as the LIBOR and the Fed funds rate, affect the demand for money by raising or lowering the cost to borrow—in essence, money's price. When borrowing is cheap, firms will take on more debt to invest in hiring and expansion; consumers will make larger, long-term purchases with cheap credit; and savers will have more incentive to invest their money in stocks or other assets, rather than earn very little—and perhaps lose money in real terms—through savings accounts. Policy makers also manage risk in the banking system by mandating the reserves that banks must keep on hand. Higher reserve requirements put a damper on lending and rein in inflation.

    Read More

  • The Basics of Buying Stocks and the Stock Market

    445 Words  | 1 Pages

    The stock market is a centralized area where buyers and sellers comes together to perform stock transaction. When one thinks of the stock market, the first thing comes to mind is Wall Street which is sometimes referred to as the New York Stock Exchange as well as the NYSE.

    Read More

  • The Federal Reserve System

    576 Words  | 2 Pages

    Three monetary policy tools that are used in the economic world are open market operations, discount rate, and reserve requirements. When it comes to the monetary policy tools, they are all beneficial, nonetheless the open market operation is the primary and most important tool used by the Federal Reserve System and can be easily executed. Open market operations is the buying and selling of U.S Government securities on the open market for reasons of the growth of credit and money aggregates and the swaying short-term interest rates. It affects the banks reserve through buying or selling of bonds, which ca...

    Read More

  • Kampfire Case

    430 Words  | 1 Pages

    a) What is a financial market? How are financial markets differentiated from markets for physical assets?

    Read More

  • Monetary and Fiscal Policy

    1405 Words  | 3 Pages

    Monetary policy is the mechanism of a country’s monetary authority (usually the central bank) taking up measures to regulate the supply of money and the rates of interest. It involves controlling money in the economy to promote economic growth and stability by creating relatively stable prices and low unemployment. A monetary policy mainly deals with the supply of money, availability of money, cost of money and the rate of interest to attain a set of objectives aiming towards growth and stability of the economy. Here are some of the monetary policy tools:

    Read More

  • Monetary and Fiscal Policies in UK

    1555 Words  | 4 Pages

    Monetary policy is the central bank’s use of increasing or decreasing the money supply or the base rate of interest to influence the level AD. It can be expansionary - used to take the economy out of recession by increasing the money supply and the interest rates and therefore increasing the AD.

    Read More

  • The Canadian Financial System

    924 Words  | 2 Pages

    Industry life cycle - The banking industry in Canada is very stable and can be considered to be a saturated industry. This means that the industry is usually in the maturity stage of the life cycle. \ - That makes it stable, very well developed and highly concentrated, with the five largest financial institutions controlling more than 85% of the sector’s total assets, resulting in an oligopoly in the market (Claudio Eggert). - The strategic implications of the life cycle means that these big five companies will continue to push for growth and many have turned to emerging market economies, such as an international strategy

    Read More

  • The Bank of Canada

    1518 Words  | 4 Pages

    Binhammer, H. H. & Peter S. Sephton. Money, Banking and the Financial System. Nelson, 2001.

    Read More

  • Exhange Risk Faced by Multinational Corporations (MNCs)

    1553 Words  | 4 Pages

    Ritter, Lawrence R., Silber, William L., Udell, Gregory F. 2000, Money, banking, and Financial Markets, 10th edn, USA.

    Read More

  • The Functions of the Securities Firms and Investment Banks in Saudi Arabia and the United States

    1536 Words  | 4 Pages

    Consequently, an investment bank does not undertake the normal banking operations of depositing money in contrast to their counterpart banks in the category of the retail banks and commercial banks. However, they help in the amalgamation, contracting, assuming or acquiring possession of companies. Furthermore, the investment banks offer supportive services in the likes of market order, and the trading of a financial instrument whose value is based on another security,...

    Read More

  • Market Price

    1137 Words  | 3 Pages

    Markets exist for the vast majority of goods and services. Markets can be defined broadly or narrowly. For example there are the consumer goods, capital goods, commodities, financial and labor markets. Each of these broad categories can be broken down into more specific markets. For example within the financial market there are markets for foreign exchange and for long term loans, within the corn modifies market there are the markets for corn and copper and within the consumer goods market there are the markets for clothes and cars. Prices usually play an important role in these markets.

    Read More

  • Difference Between Physical Money And Virtual Money

    1498 Words  | 3 Pages

    Vietnam is one of the emerging economies of the world, the country experiences high economic growth for continuous years. Banks, stock exchange market and insurance make up the backbone of one country’s financial system. This essay reflects on the recently changes in Vietnam regarding actual money and virtual money. The essay will first discuss the various definition and lays out some comparison between the two types of money. The later part of the essay will discuss the possible role of the two types of money within Vietnam’s economy

    Read More

  • The Foreign Exchange Market

    1006 Words  | 3 Pages

    There is one thing that differentiates the international business with the domestic business where it uses more than one currency in the commercial transaction. For example, if a company from British purchases some goods from a company from US, the international transaction will require for exchanging pounds and U.S. dollars which involve the foreign exchange market. In the foreign exchange market, any country that wish to do business with foreign country, the country need to convert their domestic currency into the foreign currency that they are wish to cooperate with through foreign exchange.

    Read More

  • Role Of Financial Sector In The Banking Sector

    1366 Words  | 3 Pages

    Banks sector is playing an important role in economies. The banking industry, as the classic and the most influential of financial intermediaries, facilitates economic operations. Financial sector in the worldwide country has been changes over these years by looking the changes of financial structure environment and economic conditions. Thus, banks are a very important point to financial system and play an important role as control and contribute growth to the economic sector.

    Read More

More about Understanding the Mechanics of Money Market

Open Document