Near-money assets in the money market include stocks, bonds, government bills, bills of exchange, promissory notes, and others. This indicates that the money market has developed. The money market is said to be more developed when there are more items that are closely related to money. We’ll look at the features of developed money market and talk about the related topics in this area.
A well-developed money market allows for the availability of cash as well as the usage of low-cost services to transfer funds between marketplaces. The London Money Market provides consumers from all around the world with these types of money transfer options.
Features of Developed Money Market
Most people feel that there are six distinct indicators that a money market is fully developed. For these things to occur, there must be a central bank, a well-established commercial banking system, sufficient financial assets, a well-developed sub-market, an interest rate structure, and other legal and economic rules. Here is an overview of features of developed money market with a detailed explanation for your better understanding.
Flexibility and Adequacy of Funds
A well-developed money market should have plenty of money. The money that enters and exits the money market should be able to shift direction. So, whether the flow of cash increases or decreases, it should be determined by how much people want them.
Highly Developed Industrial System
The money market can only do its job and achieve its primary aim if the economic system is stable. The money market has grown and requires this type of organization.
Integrated Monetary and Fiscal Policies of Money Market
The central bank is in charge of monetary policy, whereas the government is in charge of fiscal policy in terms of business. Fiscal policy seeks to maximize government revenue, whereas monetary policy seeks to maintain price stability. If these regulations are fully incompatible, they will severely disrupt the functioning of a well-established money market.
Presence of a Central Bank
All lenders use the Central Bank. If they sell their eligible shares at a discount, they will be able to receive assistance when needed while also maintaining their emergency funds. In times of financial distress, this makes it easier for commercial banks and other organizations to convert assets into cash. Open market operations allow the central bank to take in extra cash when times are sluggish and then give more liquidity when times are busy. In this sense, the word indicates that the central bank is in charge of running and managing the money market. The central bank cannot yet control or influence the money market because it is still in its early phases and has not grown significantly.
Highly Organized Banking System
Commercial banks serve as the backbone of the money market. These are the primary sources of funding for short-term expenses. The way they manage loans and advances has a significant impact on the overall money market. The financial system is well-organized, and private banks play a key role in connecting the central bank to other elements of it. They serve as intermediaries for many types of groupings. The fact that the money market is still young indicates that commercial banking has not reached its full potential.
Availability of Ample Resources
Aside from that, a complex money market offers numerous tools for utilization. A well-established money market makes it simple to find buyers from within and beyond the country. The London Money Market attracts investors from all around the world, allowing it to raise sufficient funds. People from other countries frequently believe that investing in highly liquid assets in industrialized countries is a low-risk strategy to make a large sum of money. The ability to transmit money from one location to another at a minimal cost is one of the reasons resources are increasing. To function smoothly and efficiently, the money market requires an adequate supply of dollars in circulation.
This suggests that the primary objective is to expand the money market’s resources. Money markets that underdeveloped are unable to receive funds from other nations due to volatile politics and fluctuating exchange rates. It is crucial to understand that you do not need a sophisticated money market to have it. It is possible to establish a money market even if you are unable to obtain short-term loans from countries other than the US.
Near Money-assets
An advanced money market contains a wide variety of financial items. Bills of exchange, treasury bills, promissory notes, and short-term government bonds are examples of such assets. The money market will expand faster if there are more assets close to cash. Because all bills created the same way, they can be purchased and sold without difficulty. There should always be these investments available on the money market. This credit instrument market should also see a high volume of buyers and sellers. To grow, the money market need access to credit tools and near-money assets. The money market exists and thrives on the trades of sellers in near-money assets.
Better Industrial Relations in a Well Developed Money Market
As more lockouts and strikes occur around the country, output will halt and demand for short-term loans will fall. So, for the money market to completely expand, the industrial environment must be adaptable. This is good features of developed money market.
Integrated Interest-rate Structure
If there is an integrated interest rate system, it indicates that the money market is fully developed. Interest rates in various sub-markets are closely related because they are tied to one another. To be clear, when the bank rate changes, so do interest rates in all sub-markets, but only in a proportional and equitable manner. Because of interest rates, the central bank may monitor the money market. This framework serves as the foundation for this statute.
Sub-markets
A developed money market consists of submarkets that are both highly developed and extremely sensitive. The money market is essentially a collection of smaller exchanges where various types of loans with varied due dates purchased and sold. Call loans, collateral loans, acceptances, foreign exchange, bills of exchange, commercial and government bills, and other financial assets will more easily trade on exchanges. There will be markets for acceptances. In any scenario, a money market could not arise due to these submarkets or because tiny changes in interest and discount rates would not elicit a significant response. All three of these marketplaces are part of the New York and London Money marketplaces.
Each submarket requires a large number of stores and bids to function properly. “The structure of the money market will be more developed and broader if there are a greater number of sub-markets,” Professor S.N. Sen previously said. However, this alone is insufficient; submarket integration also required. When interest rates are high in one submarket, people looking to borrow money will hunt for cheaper rates in another. This is due to the increase in competitiveness. In this instance, lending organizations will relocate to areas of the market with the highest interest rates. This makes it easy to move resources across locations.
There several submarkets in developing nations such as India, yet many do not exist or are poorly connect. There are various submarkets that do not work together. Interest rates vary greatly across India’s markets. Because the money market is still in its early stages, it lacks a number of significant submarkets. The bill market is the most important among these. However, in recent years, there has been a noticeable increase in the level of integration between different markets.
Availability of Proper Credit Instruments
For the money market to function properly, there must be a constant supply of assets that can easily change. There are various types of these items, including Treasury bills, bills of exchange, and others. There are several opportunities on the money market for sellers who understand how to trade these assets. To keep the money market from becoming fully established, there must be a large number of traders and brokers who can trade in negotiable securities, as well as a large number of those securities to trade. Dealers value the ability to trade in these assets.
Promotion of Foreign Trade in a Well Developed Money Market
As international trade expands, a well-developed money market will see an increase in foreign bills and foreign exchange transactions. There will also be a discount for overseas bills.The currency rate will handle in a more open manner.
International Attraction
Money markets that well developed may able to attract purchasers from nations other than the United States. Foreigners looking to buy, sell, or gift money are lining up to participate in the active developed money market.
FAQ
What is the Importance of a Developed Money Market?
Central banks use money markets to maintain track of the economy’s cash flows. If someone needs money immediately, they can get it from the money market at a reasonable cost. It also promotes capital market growth and enhances business and industry. Money markets allow for more effective monetary policy.
What is the Difference between Developed and Undeveloped Money Market?
A number of different institutions collaborate to create the established money market. These banks include the central bank, commercial banks, bill brokers, discount houses, acceptance houses, and others. Moneylenders, indigenous bankers, merchants, dealers, owners, pawnbrokers, and others are among those who work in the underdeveloped financial market.
Why Financial Markets are Poorly Developed in Developing Countries?
Because of low interest rates and excessive risk-taking, asset values have hit all-time highs. Risk spreads and term premiums have dropped, while the non-bank sector has expanded, resulting in increased debt, reduced cash flow, and a lack of security. There are presently three major threats. This implies that anything can happen in the banking sector.
Final Remarks
According to Money Market, the various types of banks are similar to spokes on a wheel, with the Bank of England serving as the base, joint stock banks as the hub, and shop chains as the rim. The features of developed money market has a strong role to play in the whole process which you should be aware of it while conducting various business activities. For tips on differences between money market and capital market, check out this guide specially for you.
