Article: the money market

1. Money market is a market in which funds are transferred from lenders to borrowers in a short period of less than one year. Money market instruments are generally characterized by a high degree of safety of principals (low risk) and high marketability (liquid funds). A typical money market instrument is worth $1 million or more and they have maturities ranging from 1 day to 1 year. 2. The principal borrowers in the money markets are y Banks through federal funds, discount window, Negotiable Certificates of Deposit (CDs), Eurodollar Time Deposits and CDs and Repurchase Agreements y Securities dealers, banks, nonfinancial corporations, government through Repurchase Agreements and Treasury Bills y State and local governments through Municipal notes y Nonfinancial and financial businesses through Commercial Paper and Bankers Acceptances y Farm Credit System, Federal Home Loan Bank System, Federal National Mortgage Association through Government-Sponsored Enterprise Securities y Money market funds, local government investment pools, shortterm investment funds through Shares in Money Market Instruments y Dealers, banks (principal users) through Futures Contracts and Futures Options y Banks (principal dealers) through swaps. 3. Banks have three main important roles in the money market. First, they borrow in the money market to fund their loan portfolios and to acquire funds to satisfy noninterest- bearing reserve requirements. Second, they function as dealers in the market for over-the-counter interest rate derivatives, and finally, they provide, in exchange for fees, commitments that help insure that investors in money market securities will be paid on a timely basis