OMTEX CLASSES: What is money market? What are the characteristics of money market?

What is money market? What are the characteristics of money market?



Meaning: - A market where short term funds are borrowed and lent is called 'money market'. It is a market for financial assets that are close substitutes for money. The instruments dealt with in the market are liquid and can be converted quickly into cash at low transaction cost.

Definition: - According to the Reserve Bank of India "A money market is the centre for dealing, mainly of short term characters in money assets, it needs the short term requirements of borrowers and provide liquidity or cash to the lenders. It is a place where short term surplus investible funds at the disposal of financial institution or individuals are bid by borrower's agents comprising institutions and individuals and also the government itself.

Characteristics of Money Market:

1.       Short term funds are borrowed and lent.
2.       No fixed place for carrying out operations.
3.       Dealings may conduct with or without brokers.
4.       The financial assets which are dealt in are close substitute for money i.e. the assets can be converted into cash with ease, speed and without any loss.
5.       The maximum period for which the funds are traded in the market is one year.
6.       It is not a single market but a collection of markets for different instruments.

7.       The main organizations in the market are RBI, State governments, banks, corporate investors, etc.