money market

Explain the economic function of money market and the importance of this

Money
Market

Economic Function of Money Market
• To maintain monetary balance
• To maintain balance between demand and supply of money for short term
transactions
• To promote economic growth
• To channelize funds to various sectors in economy
• To maintain and provide mechanism for implementation of monetary
policy in an effectual manner

Cont....
• It helps in capital formation by generating savings and investment in
nation.
• Money market provides funds to banks and financial institutions so that
short term need of money can be fulfilled by them.
• Treasury bills may be issued by the government to raise short term loans.

Importance of Money Market
• Money market is vital as it plays the role in financing international as well
as domestic trade in an effective manner.
• Finance is provided to business traders through bills of exchange.
• The acceptance houses eases in providing financing international trade.
• Profitable investment is observed as excess reserves are utilized by the
banks in a manner which will yield better returns.
• Excess reserves are invested in short term bills of exchange which can be
easily converted into cash.

Cont....
• Commercial banks fulfil their demands through money market by recalling
short term loans.
• It may not need to borrow from central bank at high interest rate.
• Money market are short term loans which are important to meet short term
demands of commercial banks.
• This also helps central bank as short run interest rates in money market
serves as an indicator of monetary conditions in the nation.
• This helps the central bank to adopt better banking policy.

References
Zhang, X., Chen, S. and Liu, Y., 2016. Research on the transmission
mechanism between the money market interest rates and the capital market
interest rates. China Finance Review International. 6(2). pp .110-124.
Strahan, P. E. and Tanyeri, B., 2015. Once burned, twice shy: Money market
fund responses to a systemic liquidity shock. Journal of Financial and
Quantitative Analysis. 50(1-2). pp .119-144.
Fricke, D. and Lux, T., 2015. Core–periphery structure in the overnight money
market: evidence from the e-mid trading platform. Computational
Economics. 45(3). pp .359-395.

Thank
You!!