Question

Nature of money market can be well explained with the help of its features. State any three such features of money market.

Answer 1

Money Market can be understood as the market for short term funds, wherein lending and borrowing of funds varies from overnight to a year. It is an important part of the financial system that helps in fulfilling the short term and very short term requirements of the companies, banks, financial institution, government agencies and so forth.

Salient Features of Money Market

• It is a wholesale market, as the transaction volume is large.
  
• Trading takes place over the telephone, after which written confirmation is done by way of e-mails.
  
• Participants include banks, mutual funds, investment institutions and Central Banks.
  
• There is an impersonal relationship between the participants in the money market, and so, pure competition exists.
  
• Money market operations focus on a particular area, which serves a region or an area. On the basis of the market size and needs, the area may differ.