Money Market – Meaning, Features & Functions

What Is Money Market?

The money market is a market for short-term instruments that are close substitutes or deals with money. It is not a physical location like the stock market but an activity that is conducted over the telephone, mail etc.

Transactions of money markets include lending and borrowing of cash for a short period of time and also sale and purchase of securities having one year term or which gets redeemed (paid back) within one year period.

In big cities one can find many examples of money market, the new york money market in New York and the London money market in London

Features Of Money Market

1.Money Market is market which deals with short term.

2.It is not a single market but a collection markets of several instruments.

3.In Money Market major institutions are involved like RBI, Commercial Bank, NBFC, State Govt., Provided Fund, PSUs, NRIs, The Securities Trading Corporation of India, GIC & LIC etc.

4.In the money market a supplier is one who has temporary excess of funds.

5.Funds are borrowed in the market for a short period ranging from a day to six months or less than one year.

6.The corporation may lends its surplus in the short-term markets, similarly a bank may take loan from the money market for meetings it’s temporary seasonal withdrawals.

7.The most common instruments of money market are Call Money, Treasury Bill, Certified Of Deposits, Commercial Bill etc.

8.All Transaction in the money market can be both secured and unsecured without collateral security.

9.Money Market is a need based market where in the demand demand and supply of money shape the market.

10.It is a wholesale market of short-term debt instruments.

11.It has no fixed geographical location to re der operation.

12.Most of the money market instruments provide fixed returns to its lenders and investors.

13.In India the money market is regulated and managed by the RBI.

14.The Money Market provides multiple instruments to its lenders and investors.

Functions Of Money Market

Money market is an important part of the economy. It plays a very significant role and functions. It is basically a market for short-term monetary transactions. Thus it has to provide facilities for adjusting liquidity to the banks, business, corporation, Non-Banking Financial Institution (NBFI) and other financial institutions along with investors.

For the sake of clarification some of the most important or major functions of money market are pointed below:

Maintain monetary equilibrium

It means to keep a balance between the demand for and supply of money for short-term monetary transactions.Promote Economic Growth Money market can do this by making funds available to various units in the economy such as agriculture, small scale industries etc.

It Helpful For the Trade & Industry

The Money Market provides adequate finance to trade and industry. Similarly it also provides a facility of discounting bills of exchange for trade and industry.

It Helpful for Implementing Monetary policy

It is another most important function of the Money Market. It provides a mechanism for an effective implementation of the monetary policy.

It helps in Capital Formation

Money market makes available investment avenues for a short term period. It helps in generating savings and investment in the economy.

It provides Non-Inflationary sources of finance to Govt.

It is possible by issuing treasury bills in order to raise short loans. However this does not lead to increase in the prices.

It helps to Mobilisation Of Funds

The money market helps in transferring funds from one sector to another. No country can develop its trade, commerce and industry until and unless the financial resources are mobilised.

Self Sufficiency of Commercial Banks

Apart from those, the Money Market is an arrangement which accommodates banks and financial institutions dealing in short-term monetary activities such as the demand for and supply of money.

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