Money Markets Overview

Money Markets

• Provide short-term liquidity for governments, banks, and large corporations.
• Enable borrowing and lending of funds for durations up to a year to manage immediate financial needs.

Money Market Segments

• Features key segments:
  • Government securities market
  • Interbank lending market
  • Commercial paper market
  • Repurchase agreement (repo) market

Money Market Participants

• Major participants include:
  • Central banks
  • Commercial banks
  • Corporations
  • Mutual funds
  • Governments

Money Market Instruments

• Treasury Bills and Government Securities

  • Short-term debt instruments with maturities of one year or less.
  • Issued by the government to satisfy short-term funding requirements.

• Interbank Market

  • A platform where banks lend to each other to manage liquidity and reserve needs.
  • Typically involves very short-duration loans, such as overnight or a few days.

• Commercial Papers

  • Unsecured, short-term debt instruments issued by corporations.
  • Maturities usually range from 1 to 270 days, mainly used for working capital.

• Certificates of Deposit (CDs)

  • Time deposits with fixed maturity dates and interest rates.
  • Serve as investment tools for both businesses and individuals.

• Repurchase Agreements (Repos)

  • Short-term loans where securities are sold with an agreement to be repurchased at a higher price later.
  • Commonly used for short-term borrowing purposes.

• International Money Market Securities

  • Instruments traded internationally, such as Eurodollars, which are US dollar deposits in foreign banks.

Money Market Interest Rates and Yields

• Typically lower than long-term debt market rates due to the short-term, low-risk nature of instruments.
• Influenced by central bank policies and overall economic conditions.