Money Market
Definition
The money market refers to the global marketplace where short-term borrowing and lending of funds take place. It includes various financial instruments such as Treasury bills, commercial paper, and certificates of deposit.
Analogy
Imagine the money market as a busy train station where people are constantly coming and going, exchanging money for short periods of time. Just like passengers hop on and off trains quickly, borrowers in the money market borrow funds for a short duration before returning them.
Related terms
Treasury Bills: These are short-term debt obligations issued by the government to finance its operations. They have maturities ranging from a few days to one year.
Commercial Paper: It is an unsecured promissory note issued by corporations to raise short-term funds. Investors purchase these notes at a discount and receive the face value upon maturity.
Certificates of Deposit (CDs): CDs are time deposits offered by banks with fixed terms and interest rates. They provide higher interest rates than regular savings accounts but restrict access to funds until maturity.
"Money Market" appears in:
Additional resources (2)
Practice Questions (11)
When the interest rate decreases, what usually happens in the money market?
What does the money market graphically illustrate?
When the Federal Reserve buys bonds in an open market operation, what happens in the money market?
In the context of the money market, what is a liquidity trap?
When the supply of money increases, what usually happens to the equilibrium interest rate in the money market?
If there's a decrease in the demand for money, what will likely happen to the interest rate in the money market?
In the money market, what happens when there's an increase in income?
What role does the Federal Reserve play in the money market?
What's the effect of a decrease in the supply of money on the money market?
In the context of the money market, what does the term "nominal interest rate" refer to?
What is the relationship between the interest rate and the quantity of money supplied in the money market?
Resources
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