In finance parlance, money market refers to the global financial market for borrowing and lending short-term debt.
It provides short-term cash/liquidity funding for the global financial system.
The money market is where short term tenure obligations such as treasury bills, commercial paper, and bankers’ approvals, etc. are bought and sold.
What Is Money Market Instruments?
The money market consists of financial institutions and money or credit dealers who either undertake borrowing or lending.
Participants borrow or lend for a short period, usually up to thirteen months.
This market trading of short-term financial instruments is commonly called “paper”.
This is in contrast to the relatively long-term capital market, which is supplied by bonds and shares.
At the core of the money market are the banks that borrow and lend to each other using commercial paper, repurchase agreements, and similar instruments.
These instruments are often determined by the appropriate terms and the currency (ie the context by which the price is fixed) the London Interbank Rate (LIBOR).
Finance companies such as GMAC usually collect funds by issuing large amounts of their Commercial Letters of Commercial Property (ABCP) which are secured by pledging eligible asset characters in the ABCP medium.
Examples of eligible assets include auto loans, credit card receivables, residential / commercial finance loans, finance securities and so on.
Some large corporations with strong credit ratings, such as General Electric, issue commercial paper on their credit.
Other large companies issue commercial paper by banks on their behalf through commercial paper lines.
In the United States, federal, state, and local governments issue paper to meet funding needs.
State and local governments issue municipal letters while the U.S. issues Treasury bills to fund US public debt.
- Retail and institutional money market funds
- The bank
- Central bank
- Cash management program
- Irregular ABCP mediums, which themselves sell cheaper paper while looking to buy high-profit paper.
- Merchant bank