Instruments Used in Money Market and Advantages

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Hello welcome to this class on the topic: Money Market: Here we will take a look at the definition of money market, instruments used in the money market and advantages.

Table Of Contents

  1. Definition of money market
  2. Instruments used in the money market
  3. Institutions involved in the money market
  4. Advantages of money market

MONEY MARKET

Definition: Money market can be defined as a market for short-term loan. The market consists of institutions or individuals who either have money to lend or wish to borrow on a short-term basis.

Money Market in economics
Money Market in economics

Instruments used in the Money Market

Let’s look at the various instruments that are used in the morning market.

  1. Treasury bills: Treasury bill is normally issued by the Central Bank of a country, which assists the government to borrow money from the money market on short-term basis.
  2. Bill of exchange: Bill of exchange refers to a promissory note which shows the acknowledgment of indebtedness by a debtor to his creditor and his intention to pay the debt on demand or at an agreed time in future. Normally Ninety (90) days.
  3. Call money funde: The call money fund or market is a special arrangement in which the participating institutions invest surplus money for their immediate requirement on an overnight basis with the interest and withdrawal on demand. The call money has an advantage of early return and at the same time are withdrawable on demand. It provides solution to the immediate stock of liquidity pressure in the money market.

INSTITUTIONS INVOLVED IN THE MONEY MARKET

There are several institutions which are involved in the money market, so we take a look at them here:

  1. Central Bank
  2. Commercial Banks
  3. Acceptance houses
  4. Finance houses
  5. Discount houses
  6. Insurance companies

Advantages of Money Market

  1. Provision of finance: Money market enables entrepreneurs and investors to raise enough finance through borrowing to run their businesses.
  2. Creation of extra income: The money invested in money market is capable of yielding extra income in form of interest.
  3. Promotion of economic development: This is another advantages of money market. Economic growth and development is enhanced through borrowing from money market.
  4. Ability to recall invested funds: Funds invested in the morning market are very easy to recall.
  5. It enhances Savings: Money market provide opportunity for those having surplus fund to invest thereby enhancing savings.

Glad you have learnt and written something down from this article. You can visit my other post on capital market, meaning and advantages.

Revision Questions

  1. Define money market
  2. Mention the instruments used in the money market
  3. List the institutions involved in money market.
  4. What are the Advantages of money market
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