Basic Functions Of Money Market
The money market is the exchange market which is organized wherein the participants can borrow and lend high-quality, short-term debt securities that have maturities less than one year. This market facilitates the banks, governments, and other institutions to see the short-term assets in order to fund their immediate cash flow requirements. One can also look at the cryptocurrency market to fund their immediate requirements as this market offers various software like Qprofit system which helps the investor to earn money immediately. Read this post to understand all about it.
The money market also enables the individuals to invest their small funds in the low-risk market. The instruments traded here are certificates of deposits, federal funds, commercial paper, bills of exchange, etc.
Money market helps in contributing to the country’s development and economic stability by offering short-term liquidity to the commercial banks, large organizations and governments. Investors who have excess money at their disposal can invest in this market and earn interest.
Below mentioned are few of the main functions.
Finances trade- This market offers finances to international and local traders who require money urgently to meet their short-term needs. The market provides the facility of discounting the bills of exchange and thus offers immediate funds to pay for the services or goods. The international traders get benefited from discount markets and acceptance houses. They also offer funds to different units of the economy like small-scale industries and agriculture.
Industrial growth- Money market provides the business with an easy avenue which helps them to get short-term loans so that their working capital needs will be met. As the businesses engage in transactions that are in large volume, they will experience a shortage of cash with regard to paying the employees, buying raw-materials or meeting any other short-term expenditure.
Central bank policies- Central banks have the responsibility to guide the country’s monetary policy and taking measures that ensures a strong and healthy financial system. The central bank could perform the function of policy-making efficiently with the help of the money market. For instance, the rate of interest in the money market denotes the condition of the banking industry. In addition to this, the market helps the central bank in influencing sub-markets and implements the monetary policy objectives.
Self-sufficiency of commercial banks- Money market offers the facility of the ready market to the commercial banks where they could invest all their excess reserves. It offers them to maintain liquidity and at the same time earn interest.