Finance Dictionary
Money Market
Definition
The trade in short-term loans between banks and other financial institutions.
Deep Dive
The money market is a segment of the financial market specializing in the trade of short-term, highly liquid, and low-risk debt instruments, typically with maturities of less than one year. It serves as a vital channel for institutions, corporations, and governments to manage their short-term cash flow needs, borrow funds for immediate expenses, and invest surplus cash in secure, easily accessible instruments. Participants include banks, investment funds, corporations, and governments.
Examples & Use Cases
- 1A corporation issuing commercial paper to raise funds for its payroll and inventory purchases for the next three months
- 2A bank lending excess reserves to another bank in the overnight interbank market
- 3An individual investing in a money market mutual fund for a safe, short-term parking place for cash with modest returns.
Related Terms
Capital MarketLiquidityTreasury BillsCommercial PaperInterbank LendingCertificates of Deposit