Business, Legal & Accounting Glossary
Money market refers to that section of the financial market where financial instruments with short maturities and high liquidity are dealt with. Money markets are used for borrowing and lending purposes for a limited period of time. Money markets are considered safe for investing money because of the high liquidity of securities. They attain maturity within a short time.
At a money market, short-term obligations like commercial paper, banker’s acceptances and Treasury bills are traded in. Treasury bills are short term financial instruments that offer profitable returns. It is considered to be a no-risk instrument according to which the holder of the bill gets a specific amount of money after a certain period of time. Commercial paper is also a short term financial obligation. It is issued by financial organizations and corporate houses.
Major money market participants are banks that borrow from and lend to each other. Instruments traded in money markets are normally benchmarked with the Libor interbank rate. Financial companies that participate in money markets generate finance for themselves by issuing substantial amounts of asset-backed commercial papers.
These commercial papers are secured by pledging certain assets, that are supposed to be eligible, against the group of asset-backed commercial papers. There are certain companies like General Electric that have decent credit ratings. These companies issue commercial papers from their own credit. There are some major financial corporations as well. They have banks issuing commercial papers for them. This is done by way of commercial paper lines.
Following assets are regarded as being eligible for pledging against asset-backed commercial papers:
Some of the common instruments of the money market include commercial paper, certificate of deposit, Eurodollar deposit, Banker’s acceptance, municipal notes, money market mutual funds, US federal agency short term securities, federal funds in US and treasury bills.
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This glossary post was last updated: 27th March, 2020 | 1 Views.