Money Market
Explanation: The money market is a segment of the financial market where financial instruments with high liquidity and short maturities are traded. It is used by participants as a means for borrowing and lending in the short term, with maturities that range from overnight to just under a year. Money market instruments include Treasury bills, commercial paper, certificates of deposit (CDs), and repurchase agreements (repos).
Example: A company may park its excess cash in a money market fund, which invests in short-term instruments like Treasury bills and commercial paper, to earn a return while maintaining liquidity.
Reference Link: For more information on the money market, visit Investopedia’s Money Market.
FAQs:
- What is the purpose of the money market?
- To provide a mechanism for managing short-term funding needs and excess liquidity.
- What are the key characteristics of money market instruments?
- High liquidity, short maturities, low risk, and relatively low returns.
- Who participates in the money market?
- Participants include financial institutions, corporations, governments, and individual investors.
- What is the difference between the money market and the capital market?
- The money market deals with short-term funding and investments, while the capital market deals with long-term investments like stocks and bonds.
- How do money market funds work?
- Money market funds pool investor money to purchase a diversified portfolio of short-term, low-risk securities, providing liquidity and modest returns.