The money market is a component of the financial markets for assets involved in short-term borrowing and lending with original maturities of one year or shorter time frames. Trading in the money markets involves Treasury bills, commercial paper, bankers' acceptances, certificates of deposit, federal funds, and short-lived mortgage- and asset-backed securities. It provides liquidity funding for the global financial system.
The money market consists of financial institutions and dealers in money or credit who wish to either borrow or lend. Participants borrow and lend for short periods of time, typically up to thirteen months. Money market trades in short-term financial instruments commonly called "paper." This contrasts with the capital market for longer-term funding, which is supplied by bonds and equity.
The core of the money market consists of interbank lending--banks borrowing and lending to each other using commercial paper, repurchase agreements and similar instruments. These instruments are often benchmarked to (i.e. priced by reference to) the London Interbank Offered Rate (LIBOR) for the appropriate term and currency.
Finance companies, such as GMAC, typically fund themselves by issuing large amounts of asset-backed commercial paper (ABCP) which is secured by the pledge of eligible assets into an ABCP conduit. Examples of eligible assets include auto loans, credit card receivables, residential/commercial mortgage loans, mortgage-backed securities and similar financial assets. Certain large corporations with strong credit ratings, such as General Electric, issue commercial paper on their own credit. Other large corporations arrange for banks to issue commercial paper on their behalf via commercial paper lines.
In the United States, federal, state and local governments all issue paper to meet funding needs. States and local governments issue municipal paper, while the US Treasury issues Treasury bills to fund the US public debt.
- Trading companies often purchase bankers' acceptances to be tendered for payment to overseas suppliers.
- Retail and institutional money market funds
- Central banks
- Cash management programs
- Arbitrage ABCP conduits, which seek to buy higher yielding paper, while themselves selling cheaper paper.
- Merchant Banks
Common money market instruments
- Certificate of deposit - Time deposits, commonly offered to consumers by banks, thrift institutions, and credit unions.
- Repurchase agreements - Short-term loans—normally for less than two weeks and frequently for one day—arranged by selling securities to an investor with an agreement to repurchase them at a fixed price on a fixed date.
- Commercial paper - Unsecured promissory notes with a fixed maturity of one to 270 days; usually sold at a discount from face value.
- Eurodollar deposit - Deposits made in U.S. dollars at a bank or bank branch located outside the United States.
- Federal agency short-term securities - (in the U.S.). Short-term securities issued by government sponsored enterprises such as the Farm Credit System, the Federal Home Loan Banks and the Federal National Mortgage Association.
- Federal funds - (in the U.S.). Interest-bearing deposits held by banks and other depository institutions at the Federal Reserve; these are immediately available funds that institutions borrow or lend, usually on an overnight basis. They are lent for the federal funds rate.
- Municipal notes - (in the U.S.). Short-term notes issued by municipalities in anticipation of tax receipts or other revenues.
- Treasury bills - Short-term debt obligations of a national government that are issued to mature in three to twelve months.
- Money funds - Pooled short maturity, high quality investments which buy money market securities on behalf of retail or institutional investors.
- Foreign Exchange Swaps - Exchanging a set of currencies in spot date and the reversal of the exchange of currencies at a predetermined time in the future.
- Short-lived mortgage- and asset-backed securities
- Liquidity crisis
- Interbank lending market
- Money market account
- Money fund
- Money supply
- Overnight market
- Sweep account
- Lombard Street, A Description of the Money Market, one of the earliest popular books on the money market
- Money Market Funds Enter a World of Risk September 18, 2008, New York Times.
Wikimedia Foundation. 2010.
Look at other dictionaries:
Money market — Money markets are for borrowing and lending money for three years or less. The securities in a money market can be U.S.government bonds, treasury bills and commercial paper from banks and companies. The New York Times Financial Glossary * * *… … Financial and business terms
money market — n: the trade in short term negotiable instruments (as certificates of deposit or U.S. Treasury securities) Merriam Webster’s Dictionary of Law. Merriam Webster. 1996 … Law dictionary
money market — money .market n all the banks and other institutions that buy, sell, lend, or borrow money, especially foreign money, for profit … Dictionary of contemporary English
money market — money ,market noun count BUSINESS business activities in which banks and other financial institutions make money by lending money to other organizations … Usage of the words and phrases in modern English
money market — money markets N COUNT A country s money market consists of all the banks and other organizations that deal with short term loans, capital, and foreign exchange. On the money markets the dollar was weaker against European currencies … English dictionary
money market — n. the system for dealing with the lending and borrowing of funds, especially by governments and large corporations, on a short term basis … English World dictionary
money market — the short term trade in money, as in the sale and purchase of bonds and certificates. [1925 30] * * * Set of institutions, conventions, and practices whose aim is to facilitate the lending and borrowing of money on a short term basis. The money… … Universalium
money market — The aggregation of buyers and sellers actively trading money market instruments. American Banker Glossary money markets are for borrowing and lending money for three years or less. The securities in a money market can be U.S. government bonds,… … Financial and business terms
Money Market — A segment of the financial market in which financial instruments with high liquidity and very short maturities are traded. The money market is used by participants as a means for borrowing and lending in the short term, from several days to just… … Investment dictionary
money market — noun a market for short term debt instruments • Hypernyms: ↑market, ↑securities industry * * * ˈmoney market [money market money markets] noun the banks and other institutions that lend or borrow money, and buy and sell foreign money … Useful english dictionary