Money Market: Features, Objectives, and Importance

Financial Markets & Money Market

Features of Money Market

1. No Geographical Constraints

   • Unlike stock exchanges, money markets operate without geographical limitations. Financial institutions can trade monetary assets over a wide area.

2. Wholesale Market for Short-term Debt Instruments

   • Primarily involves high-value transactions in instruments like treasury bills, commercial papers, and certificates of deposit.

3. Focus on Monetary Assets

   • Deals exclusively with monetary assets or instruments closely related to money supply.

4. Short-term Funds

   • Transactions typically involve funds with maturities of less than one year.

5. Diverse Sub-markets

   • Consists of various sub-markets such as the call money market and bill market. This diversity accommodates different financial instruments.

6. Link Between RBI and Banks

   • Facilitates monetary policy implementation and liquidity management through interactions between the Reserve Bank of India (RBI) and banks.

7. No Fixed Location

   • Transactions are flexible and can occur via various methods, including telephone and electronic communications.

8. Broker-free Transactions

   • Deals can be made directly between parties, without brokers.

9. Variety of Instruments

   • Includes short-term instruments like treasury bills and commercial papers.

Objectives of Money Market

i. Temporary Employment of Surplus Funds

• Provides avenues for businesses and banks to park excess funds for short durations.

ii. Overcome Short-term Deficits

• Offers short-term financing solutions to address immediate cash flow issues.

iii. Regulate Liquidity and Interest Rates

• Allows central banks to influence economic conditions by managing money supply and controlling interest rates.

These features and objectives exemplify the money market's critical role in maintaining financial stability and facilitating economic growth.

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