Money Market

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Money Market

The money market is the Financial Market for short-term borrowing and lending, typically up to thirteen months. This contrasts with the Capital Market for longer-term funds. In the money markets, Bank s lend to and borrow from each other, short-term Financial Instrument s such as Certificates Of Deposit (CDs) or enter into agreements such as Repurchase Agreement s (repos). It provides short to medium term Liquidity in the Global Financial System . Money market Derivatives include Forward Rate Agreement s (FRAs) and Short-term Interest Rate Futures .

Trading takes place between banks in the "money centers" ( New York and London primarily, also Chicago , Frankfurt , Paris , Singapore , Hong Kong , Tokyo , Toronto , Sydney , San Francisco ).

COMMON MONEY MARKET INSTRUMENTS

Bankers' Acceptance - A draft or bill of exchange accepted by a bank to guarantee payment of the bill.

Certificate Of Deposit - A Time Deposit with a specific maturity date shown on a certificate; large-denomination certificates of deposits can be sold before maturity.

Commercial Paper - An unsecured promissory note with a fixed maturity of one to 270 days; usually it is sold at a discount from face value.

Eurodollar Deposit - Dollar deposits in a U.S. bank branch or a non-U.S. bank located outside the United States.

Federal Agency Short-Term Securities - (in the US). Short-term securities issued by Government Sponsored Enterprise s such as the Farm Credit System , the Federal Home Loan Banks and the Federal National Mortgage Association .

Federal Funds - (in the US). 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 US). Short-term notes issued by municipalities in anticipation of tax receipts or other revenues.

Repurchase Agreement s - 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.

Treasury Bills - Short-term debt obligations of a national government that are issued to mature in 3 to 12 months. For the U.S., see Treasury Bills .

SEE ALSO

Money Supply

EXTERNAL LINKS

Instruments of the US Money Market

Historical data

St. Louis Fed: Monetary Aggregates