Q.“Money Market is essentially a market for short-term funds.” Discuss.

The money market is essentially a market for short-term funds because it deals only in monetary assets whose maturity is up to one year.

These assets are close substitutes for money — low-risk, unsecured, highly liquid short-term debt instruments. The market has no physical location and is conducted over the telephone and the internet. It lets participants raise short-term funds to meet temporary cash shortages and deploy excess funds for a short period to earn a return.

The statement is correct. The money market is a market for short-term funds that deals in monetary assets whose period of maturity is up to one year, and these assets are close substitutes for money.

• It is a market where low-risk, unsecured, highly liquid short-term debt instruments are issued and actively traded every day.
• It has no physical location — it is an activity conducted over the telephone and through the internet.
• It enables the raising of short-term funds to meet temporary shortages of cash and obligations, and the temporary deployment of excess funds to earn a return.
• Its instruments — treasury bills, commercial paper, call money, certificates of deposit and commercial bills — all mature within a year.
• Its major participants are the RBI, commercial banks, non-banking finance companies, state governments, large corporate houses and mutual funds.

All these features confirm that the money market is essentially a market for short-term funds.