The money market is where most short-term financial assets are bought and sold. It helps banks meet their short-term cash needs and meets the needs of borrowers at the same time. It’s where people, businesses, and governments can go to borrow money from banks and other lenders who have extra cash on hand. This topic outlines objectives of money market which will assist you to achieve desired goals in your life.
In the money market, buyers and sellers can buy and sell short-term loans and assets. It’s a place where people can lend and borrow money for short periods of time. Even though people refer to it as “money,” the money market does not handle actual currency or close substitutes such as trade bills, promissory notes, or short-term government papers that have a maximum maturity of one year. You can turn these short-term products into cash quickly and easily, with no losses and at a low cost.
Top 10 – Objectives of Money Market
One of the main reasons for the money market is to make sure that the country’s monetary policy works well. Read extensively to learn more about features of money market. The main goals of monetary policy are to grow the economy, make things more fair, and keep prices stable. During the first ten years of planning, one of the main goals of monetary policy was to get back to using normal ways to control money. Read on to learn more about objectives of money market and become the subject matter expert on it.
More Competitive
Through the money markets, commercial banks and other institutions, such as international banks and leasing and factoring firms, can also get cash. This is also true for banks in other countries. Money markets make it harder for large commercial banks to control the market, which makes it harder for businesses to get loans. Large companies do this by giving out commercial paper, which is a kind of short-term security.
As economies have grown, localised money markets have formed in the form of organisations that specialise in short-term lending and borrowing. These are the smaller markets that make up the money market.
Structure
A lot of these markets are very complex and well-organized. This is especially true for the call money market, the short-term market, the capital market, the stock market, the bill market, and the discount market. When there are more submarkets, the structure of the money market is bigger and more complicated.
Very Safe
Another objectives of the money market is to provide investors with a low-risk, highly liquid alternative to other investment options such as stocks and bonds. Putting money into these assets is a safe and sound way to keep your money safe. The Financial Services Authority [FSA] of the United Kingdom and the Securities and Exchange Commission [SEC] of the United States have rules that say at least 95% of a money market fund’s securities must have the highest credit ratings from at least 2 of the country’s main credit rating agencies.
These rules ensure the safety of the securities by requiring that a money market fund invest its assets in securities with the highest creditworthiness rating. This is why credit rating agencies like Moody’s and Standard & Poor’s give Money Market Securities such high marks that almost no other investment-grade securities can compare (Orrill).
Limitations
India’s capital market has not grown and developed like other markets have. People talk about the “capital market” and the “equity market” as if they are the same thing these days.
In advanced economies like the United States, the United Kingdom, and Japan, the debt market is much bigger than the stock market. India’s debt market is still very young, though. The only people who buy government bonds are banks, other financial institutions, and, to a lesser extent, provident funds.
Govt. Security
Usually, a securities market will start with trading in a short-term money market product, usually a government security. One of the key objectives of the money market is to provide a source of funds for governments to finance their short-term spending needs.
On the money market, you can also trade interbank deposits, bankers’ acceptances, certificates of deposit, and commercial papers from companies that are not in the financial business. The government can pay for its deficits in a way that doesn’t add to inflation by using the money markets.
General Features
People use the term “near money” to describe liquid financial assets with a short-term outlook, which is precisely the purpose of this market. It can only deal with financial assets that have a maturity of less than one year. It only includes assets that can be easily and quickly turned into cash with no loss.
Usually, business conversations take place over the phone. It is possible to send important documents and letters back and forth at a later time. In a capital market, there is no central place like a stock exchange.
Maturity
The main reason that governments, businesses, and financial institutions issue money market securities is to meet their short-term capital needs. The majority of these securities have a maturity date within the next three months. The rest are due to be paid off between three and twelve months from now.
High Liquidity
The primary objectives of the money market is to provide short-term liquidity to borrowers and investors. Because it is easy and quick to turn these investments into cash, they are called “highly liquid.”
Money that is put into these short-term securities is returned very quickly, which makes money market assets very liquid. Money market instruments are very popular with investors because they are easy to buy and sell and give a better return on principal than savings accounts.
Funds
Money market mutual funds have been the most popular choice for individual investors in this sector because they have low minimum investments and a lot of cash on hand.
Money market funds are popular not only with investors who don’t want to take risks but also with those who want a safe place for their money between high-risk and high-return options.
Transaction
Using middlemen or brokers is not allowed for businesses. The central bank, commercial banks, non-bank financial institutions, discount houses, and acceptance houses are some of the many people who take part in the money market. Most people agree that commercial banks play the most important part in this market.
Frequently Asked Questions
What Financial Instruments are Traded in Money Markets?
Money that will be needed soon, usually within a year or less, is usually put into financial instruments that are part of the “money market.” Money market instruments include a wide range of financial products like bankers’ acceptances, certificates of deposit, and commercial paper.
What are the Objectives of the Money Market?
The government’s monetary policy is one of the main goals of the money market as a whole. The main goals of monetary policy are to grow the economy, make things more fair, and keep prices stable.
What is the Risk of Money Market?
When you invest in money market instruments, you have a small chance of losing money, but not none. This is because money market instruments are very volatile and are not FDIC-insured. Even though the chances of actually losing something are low, it is still possible to do so.
Conclusion
It is a place where individuals and institutions can buy and sell short-term financial instruments that resemble money. The money market’s traded assets have a maximum maturity of one year or less, which makes it a highly liquid market. In reality, there is no “money market.” Instead, there is a network of markets. The “money market” is the network of institutions that trade overnight financial assets. We will go over the objectives of money market in detail in this article.