Question
In: Economics
What type of reforms of money markets do you think central banks should undertake (or not!)?...
What type of reforms of money markets do you think central banks should undertake (or not!)? Why?
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Expert Solution
Money markets:It is a financial market where short-term financial assets having liquidity of one year or less are traded on stock exchanges. The securities or trading bills are highly liquid. Also, these facilitate the participant’s short-term borrowing needs through trading bills. The participants in this financial market are usually banks, large institutional investors, and individual investors.
Importants:While it is an extremely efficient arena for businesses, governments, banks, and other large institutions to transact funds, the money market also provides an important service to individuals who want to invest smaller amounts while enjoying the best liquidity and safety found anywhere.for my suggestion central government should go forward with T - bill.T-bills are one of the safest money market instruments. The Central Government issues this financial instrument and it carries an attractive interest rate.Treasury bill has a highest maturity period of 364 days. They help in raising money for short term requirements for the economy. Individuals who are looking for short term investments can park their funds here. Also, T-bills can be sold in the secondary market.Treasuries are indeed free of credit risk, but they are subject to interest rate risk. However, it does become a factor if the investor is forced to sell a Treasury issue before its maturity date.Usually, money market funds are recommended to investors with an investment horizon of 90-365 days. These schemes can help you diversify your portfolio and help invest surplus cash while maintaining liquidity. Ensure that you invest according to your investment plan.A short term treasury bill helps the government raise funds to meet its current obligations, which are in excess of its annual revenue generation. Its issue is aimed at reducing total fiscal deficit in an economy, and also in regulating the total currency in circulation at any given point of time.
Rahul Sunny answered 1 year agoRelated Solutions
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