Introduction about Money Market
Money market is a market where money is bought and sold. It is a market for
short term money and financial assets that are close substitutes for money.
The market does not have a place like the stock market or commodities market.
The activity of trading is mostly done through telephones.
Every organisation doing some sort of economic activity, be it a financial
institution, business house, a corporation, partnership firm or a government body,
may come across liquidity problems. Usually the timing of the expenditure and the income receipt may not match or synchronise. To bridge this liquidity gap is the very purpose of money market. Business houses or the needy persons can overcome the mismatches of cash receipts and cash expenditures by purchasing/selling the short fall amount/surplus amount through the money market. In other words, money market is a venue for borrowing and lending money for a short term period.
The money market helps banks to adjust their liquidity crisis between
themselves. Fund surplus banks can advance to fund deficit banks over a telephone call. Similarly cash rich companies/corporations can help the banks or other companies/corporations which need temporary funds and make a reasonable earning by charging a little interest for the amount spared. The supplier of money in the money market can be anybody with a temporary excess of money.
Definitions about Money Market
As per RBI, money market is defined as “A market for short term financial assets
that are close substitute for money, facilitates the exchange of money in primary and secondary market”.
The Reserve Bank of India in its ‘functions and working’ describes money market
as “the centre for dealings, mainly short term character, in monetary assets; it meets the short term requirements of borrowers and provides liquidity or cash to the lenders. It is the place where short term surplus investible funds at the disposal of financial and other institutions and individuals are bid by borrowers, against compromising institutions and individuals and also government itself.”
According to Geoffrey Crowther “money market is a collective name given to the
various firms and institutions that deal with the various grades of near money.”
From the definitions above, it is clear that money market is an activity by which funds are received (by the needy person) and lent (by the surplus person) through telephone, e-mail or even through messengers/agents. Personal contacts between the persons are not necessary.
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