We will explain Participants of Money Market.The money market differs from the capital market mainly on the basis of the duration of the instruments traded which, on the latter, have a longer maturity.A simple way of examining the main players in the money market would be to divide them into two categories, the borrowers and lenders of financial resources.
6 Participants of Money Market;Who Is In The Money Market.
- Minister of Economy and Finance : Sells Treasury bonds to finance the national debt
- European Central Bank : Buys and sells treasuries as a primary means of controlling the money supply.
- Banks : They buy treasuries , sell certificates of deposit and make short-term loans, offer individuals the possibility to invest directly in money market securities by depositing securities.
- Insurance companies : Maintain cash reserves in short-term securities to meet unexpected funding needs
- Mutual funds : They allow small savers to participate in the money market by pooling their funds to invest them.
- Firms : buy and sell various short-term securities as a normal cash management activity.
- Individuals : Purchase mutual fund units in money market instruments or directly in the same instruments through a securities custody account.
Institutions of Money Market;Participants of Money Market
- Central Bank:
Central bank of the country is the pivot around which the entire money market revolves. It acts as the guardian of money market and increases or decreases the supply of money and credit in the interest of stability of the economy.
- Commercial Bank:
Commercial banks also deal in short-term loans, which they lend to business and trade. They discount bills of exchange and lend through advances and overdrafts.
- Non-Bank Financial Intermediaries:
Besides the commercial banks, there are non-bank financial intermediaries, which provide short-term funds to borrowers in the money market. Such financial intermediaries are savings banks, investment houses, insurance companies, pension funds and other financial corporations.
- Discount Houses and Bill Brokers:
In developed money markets, private companies operate discount houses whereas bill brokers operate in under developed money market. Both discount houses and bill brokers act as intermediaries between borrowers and lenders by discounting bill of exchange at a nominal commission.
- Acceptance Houses:
The institution of acceptance houses developed from the merchant banker who transferred their head quarters to the London Money Market m late 19th and the early 20th century. They act as agents between exporters and importers or between lender and borrower. They accept bills drawn on trader whose financial position is not strong in order to make the bills negotiable in money market. However, their importance has declined because the commercial banks have undertaken the acceptance business.
- Specialized Financial Institutions:
Specialized financial institutions like agriculture banks and industrial banks etc. provide loan to different sectors of the economy for development.
