One of the money market’s primary goals is to make short-term loans to consumers more competitive. To compensate for defects temporarily. Supports the central bank’s attempts to keep market liquidity in check. Allows markets to function, which aids the government in carrying out its monetary agenda. It also gives an excellent investment opportunity because it allows for the usage of additional funds. Check out these objectives of money market to enhance your knowledge.
The money market serves as a repository for businesses and financial intermediaries to hold surplus cash until needed. However, the influx of funds often doesn’t match short-term demands of individuals, corporations, and governments, leading to discrepancies between spending and daily sales income. Businesses utilize the money market as it offers higher returns than idle cash or bank deposits, despite the opportunity cost of reduced interest income. Investors invest emergency funds in money market assets, ensuring quick liquidity with minimal risk. Tools like “warehousing” facilitate the swift transfer of large sums from fund providers to users. Investment funds and financial institutions commonly hold money market assets to meet investment or withdrawal needs. Discover hidden gems around the world related to importance of money market by clicking here.
Objectives of Money Market
The money market’s role includes assisting the government in carrying out its monetary plan. Monetary policy has three basic goals: price stability, justice, and growth. For the first ten years of planning, the purpose of monetary policy was to make it simpler to reintroduce standard military control weapons into service. Given below are a few points on objectives of money market that you should know before you think of money, investing, business and managing it.
Limitations
In compared to other capital markets that have altered dramatically, the Indian capital market has not expanded as rapidly. Today, it is difficult to distinguish between the capital market and the stock market. The stock markets of well-known countries such as the United States, United Kingdom, and Japan are already fully matured, whereas India’s massive debt market is still in its early phases. Only banks and, to a lesser extent, provident funds have the ability to buy and sell government shares.
Govt Security
Trading in a money market instrument with a short maturity, typically a government asset, is the first stage in establishing a securities market. Other money market commodities include commercial papers from non-financial enterprises, certificates of deposit, interbank deposits, and bankers’ acceptances. The money market allows the government to run a deficit without causing the economy to develop too rapidly.
High Liquidity
These things readily convert into cash, making them extremely versatile investments. Their liquidity mostly stems from their short-term character, as they swiftly repay the principal. Investors are interested in money market products because they offer a better return on principal than savings accounts.
Structure
These markets are extremely well-developed and structured. Examples include the call money market, short-term market, capital market, stock market, bill market, and discount market. The framework of the money market becomes more intricate and all-encompassing as the number of submarkets increases.
Transaction
If there are no brokers engaged, each transaction must be completed independently. A money market consists of several sorts of financial institutions, including commercial banks, non-banking financial companies, discount houses, acceptance houses, and others. The industrial banking sector often does the most business in this field.
Very Safe
People can save money in a safe and trustworthy manner by investing in these stocks. According to laws established by the UK’s Financial Services Authority (FSA) and the US’s Securities and Exchange Commission (SEC), money market funds must keep at least 95% of their assets in securities with the highest credit ratings granted by at least two major credit rating agencies in the country. These regulatory bodies create guidelines to ensure that these assets are safe. This is the direct reason of Money Market Securities’ high credit ratings, which are far superior than those assigned to practically all other investment-grade securities (Orrill). Respectable credit rating agencies such as Moody’s and Standard & Poor’s provided these scores.
General Features
A “near money” market deals in assets or funds that mature in less than a year. It exclusively deals with financial assets that will be paid off in up to a year. This method exclusively deals with items that can be rapidly and readily converted into cash with the least amount of loss and lowest transaction fees. A lot of work happens over the phone, constituting verbal communication. Relevant documents and letters might be exchanged afterward. A capital market, unlike a stock exchange, does not take place in a specific building.
Maturity
Banks, governments, and enterprises often utilize money market assets to fulfill their short-term capital needs. This is the primary reason these assets exist. The majority of these assets have due dates less than three months away, but others are more than a year distant.
More Competitive
Money markets also provide money for private banks and other financial entities. This includes many more enterprises, as well as foreign banks, leasing and factoring companies, and so on. Money markets have two effects: they increase competition in the market for business loans while decreasing the dominance of large commercial banks. To achieve this purpose, large corporations can issue commercial paper, a sort of short-term security.
As economies expanded, money sub-markets emerged in each country’s money market. These segments of the money market comprise businesses that facilitate lending and borrowing money for short periods of time.
Funds
People regarded money market funds as the best option to invest in money market securities because they offer these assets in large quantities. Some people choose to keep their money secure while they weigh high-risk and low-risk options. Money market funds are ideal for these individuals. One major reason for this is that money market funds provide both high levels of protection and liquidity.
FAQ
What Types of Financial Instruments are Traded in the Money Markets?
Most people believe that money market stocks are an excellent place to invest money if you need it soon, within a year or less. The money market uses several sorts of money, including commercial paper, certificates of deposit, and bankers’ acceptances.
Do Money Markets Earn Interest?
Money market accounts outperform normal checking accounts because they offer interest on deposits. Not so with standard checking accounts.
What are the Objectives of the Money Market?
One of the primary functions of the money market is to implement the country’s monetary policy. Monetary policy has three basic goals: price stability, justice, and growth.
Final Remarks
In a wholesale market, buyers and sellers trade short-term assets over the phone. Brokers do not participate in this market. This type of market is known as a trade market. Extreme safety is one feature that distinguishes money market equipment. All of the securities sold on this market have short maturities, meaning they expire in less than a year. Now we are aware about the impact of objectives of money market on society, people, and organizations in both positive and negative ways.
