Accounting technicians scheme west africa
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- D.5.1 Functions of the Money Market
| D.5 The Money market The money market is a component of the financial markets for assets involved in short-term borrowing, lending, buying and selling with original maturities of one year or less. Money market refers to a collection or group of financial institutions or exchange system setup for dealing in short-term credit instruments of high quality, such as treasury bills, treasury certificates, call money, commercial paper, bankers' acceptances, certificates of deposit, bills of exchange, repurchase agreements, federal funds and repurchase agreements, as well as the dealing in gold and foreign exchange. These short-term instruments involve a small risk due to lose, because they are issued by obligors of the highest credit rating and they mature within one year. While denoting trading in money and other short-term financial assets, the money market comprises of all the facilities of the country for the purchase and sale of money for intermediate and deferred delivery and for the borrowing and lending of money for short periods of time. It is a manifestation of dealing in short-term financial instruments (their sale and purchase, as also borrowing and lending for short periods) on the one hand, and a collection of the dealers in these assets on the other. D.5.1 Functions of the Money Market The money market performs the following functions a) It provides the basis for operating and executing an effective monetary policy. b) To promote an orderly flow of short-term funds. c) To ensure supply of the necessary means of expanding and contracting credit. d) It is a central pool of liquid financial resources upon which it can make payments when it holds funds surplus to its needs. 266 e) It provides the mechanism through which the liquidity of the banking system is maintained at the desired level. f) To provide banks with the basic financial requirements for effective management of their resources. Thus, help them to universalise their assets holding by providing a forum for investment of their surplus cash. g) Mobilisation of funds from savers (lenders) and transmission of such funds to borrowers investors. h) It provides a channel for the injection of central bank cash into the system or the economy. i) It helps commercial banks to lower cash reserves through the provision of first Download 3.37 Mb. Share with your friends:
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