Money market is a market for short-term loan or financial assets. It as a market for the lending and borrowing of short term funds. As the name implies, it does not actually deals with near substitutes for money or near money like trade bills, promissory notes and government papers drawn for a short period not exceeding one year. These short term instruments can be converted into cash readily without any loss and at low transaction cost.
Money market is the centre for dealing mainly in short – term money assets. It meets the short-term requirements of borrowers and provides liquidity or cash to lenders. It is the place where short-term surplus funds at the disposal of financial institutions and individuals are borrowed by individuals, institutions and also the Government.
Features of Money Market
The following are the general features of a money market:
- It is market purely for short-term funds or financial assets called near money.
- It deals with financial assets having a maturity period up to one year only.
- It deals with only those assets which can be converted into cash readily without loss and with minimum transaction cost.
- Generally transactions take place through phone i.e., oral communication. Relevant documents and written communications can be exchanged subsequently. There is no formal place like stock exchange as in the case of a capital market.
- Transactions have to be conducted without the help of brokers.
- The components of a money market are the Central Bank, Commercial Banks, Non-banking financial companies, discount houses and acceptance house. Commercial banks generally play a dominant in this market.
Objectives of Money Market
The following are the important objectives of a money market:
- To provide a parking place to employ short-term surplus funds.
- To provide room for overcoming short-term deficits.
- To enable the Central Bank to influence and regulate liquidity in the economy through its intervention in this market.
- To provide a reasonable access to users of Short-term funds to meet their requirements quickly, adequately and at reasonable costs.