Money Market In Economics is a mechanism that allows people to buy and sell financial securities (e.g., shares and bonds) and commodities (e.g., precious metals or agricultural goods) at low transaction costs and at price that reflect the efficient market hypothesis.
“Money market is a collective name given to the various firms and institutions that deal with the various grades of near money”.
What You Must Know About Money Market In Economics.
The money market is a market for short-term loans. The period of borrowing and lending in the money market is one year or less. On the other hand, the capital market is a market for long-term loans h is a market in which funds arc borrowed and lent for a period ovci one year.
The two markets also differ in terms of the instruments they deal in. The money market deals in highly marketable liquid instruments such as the promissory note, the bill of exchange and the treasury bill, etc. On the other hand, the capital market deals in common stocks, shares, debentures and bonds.
The money market is not a market in the usual sense of the term. It does not mean a single trading place or trading organization dealing in money. But it refers to “a net work of markets that are grouped together because they deal in financial instruments which have similar function in l he economy and are to some degree substitutes from the point of view of holders.
Instruments of Money Market In Economic
Bills of Exchange
- Bills of Exchange:
“Bills of exchange is a document, which contains the order of creditor or seller for debtor or buyer to pay a certain sum of money to or to a certain person”.
- Promissory Note:
“It is a negotiable credit instrument in which the debtor makes a promise for the payment of a certain amount of money to a creditor or to the bearer of the instrument, on demand or after the expiry of a certain period”.
- Treasury Bill:
The treasury bill is a document in which the government promises to pay a certain sum of money to a person or business concern. This bill is transferable and contains a specified space for the name of purchaser. If the name of purchaser is not written on the treasury bill then it is paid to the bearer. The treasury bills may have 3, 6 or 12 months maturity period.