Money market

From Wikipedia, the free encyclopedia

A money market is a financial market for short-term borrowing and lending, typically up to thirteen months. This contrasts with the capital market for longer-term funds. In the money markets, banks lend to and borrow from each other, short-term financial instruments such as certificates of deposit (CDs) or enter into agreements such as repurchase agreements (repos). It provides short to medium term liquidity in the global financial system. Money market derivatives include forward rate agreements (FRAs) and short-term interest rate futures.

Trading takes place between banks in the "money centers" (New York and London primarily, also Chicago, Frankfurt, Paris, Singapore, Hong Kong, Tokyo, Toronto, Sydney, Mumbai, San Francisco).

[edit] Common money market instruments

• Bankers' acceptance - A draft or bill of exchange accepted by a bank to guarantee payment of the bill.
• Certificate of deposit - A time deposit with a specific maturity date shown on a certificate; large-denomination certificates of deposits can be sold before maturity.
• Commercial paper - An unsecured promissory note with a fixed maturity of one to 270 days; usually it is sold at a discount from face value.
• Eurodollar deposit - Deposits made in U.S. dollars at a bank or bank branch located outside the United States.
• Federal Agency Short-Term Securities - (in the US). Short-term securities issued by government sponsored enterprises such as the Farm Credit System, the Federal Home Loan Banks and the Federal National Mortgage Association.
• Federal funds - (in the US). Interest-bearing deposits held by banks and other depository institutions at the Federal Reserve; these are immediately available funds that institutions borrow or lend, usually on an overnight basis. They are lent for the federal funds rate.
• Municipal notes - (in the US). Short-term notes issued by municipalities in anticipation of tax receipts or other revenues.
• Repurchase agreements - Short-term loans—normally for less than two weeks and frequently for one day—arranged by selling securities to an investor with an agreement to repurchase them at a fixed price on a fixed date.
• Treasury bills - Short-term debt obligations of a national government that are issued to mature in 3 to 12 months. For the U.S., see Treasury bills.
• Money market mutual funds - Pooled short maturity, high quality investments which buy money market securities on behalf of retail or institutional investors.

[edit] External links

• Howstuffworks "How do money market accounts work?"