Question

Why are there money markets?

Answer 1

The money market is a place where people can lend and borrow money in the short term where is there high liquidity of money. The time period in the money market for borrowing or lending the money is less than a year and it is here where people buy debt securities. The people who trade in the money market are the governments, large institutions such as banks and also individual investors. Individuals can invest their money in a low risk environment if they do not want their money to be in a place where there is high risk such as in the capital market. Governments and large organizations such as banks can also sell or buy short term securities depending on their need for cash. Hence, money market helps in providing or investing money to those who need or want to invest in the short term such as the government, banks, businesses and individuals. The central bank also exercises its monetary policies through the money market. The instruments traded in the money market include treasury bills,  bills of exchange, certificates of deposit, etc.