Let us start with the basic concept of what the market is. As we know, the Market is a place buying and selling of commodities take place. We often visit the vegetable market with our parents. We buy vegetables in exchange for money. The amount of money demanded is directly proportional to the number of vegetables we purchase. If we are not satisfied with the price demanded by the vendor, we can go to some other vegetable vendor in the same market. There are different types of markets in our society. In the global financial market, there are two types- Capital and Money Market. Capital Markets aims at long-term investing, while Money Market aims at short-term lending. This is the major difference between the Money Market and the Capital Market. 

One such market is the Money Market. The money market can often be referred to as the Financial market. This market solemnly focuses on financial deals; however, there is a certain condition concerning the buying and selling of financial assets. We will discuss the Money market instruments in this article. Before that, let us understand what the Money Market is. 

Money Market

The market in which short-term monetary assets are exchanged is known as the Money Market. It is not as structured as the Capital Market. Also, the investors get lesser returns, with a wide variety of commodities. To invest liquid assets, the money market is the best option. The financial assets used in these markets can be traded as money in the primary and secondary markets. The money market financial assets have a maturity of a short period, that is, the utmost one-year period. In addition to the short maturity period, these markets have huge liquidity preferences, that is, the short-term debt can be easily met. 

Money Market is of two types-

  • The market which consists of local money lenders, traders, bankers, etc. is commonly known as Organized Money Market. This segment is quite important in the Indian Money Market
  • The market which includes commercial banks, financial intermediaries, insurance companies, etc. is commonly known as the Organised Money Market. This sector is backed by the Reserve Bank of India

The Money market aims at providing funds at a reasonable price to its investors and enables the lender to give out their idle funds into a profitable investment. In addition, it also aims in helping organizations that require working capital. Since the Money Market is regulated by the Reserve Bank of India, the finances of the government are kept with it. 

Functions and Responsibility

The various functions and responsibilities of the Money Market are as follows-

  • Like any other market, it contributes significantly to the stability of the economy, which leads to the development of the economy
  • The market provides financial assistance of short-term funds to the local trades as well as to the international trades, in times of need
  • The Money Market helps in the policy-making function of the Reserve Bank of India
  • Market Market helps industries to grow by helping to attain long-term finances from other markets
  • It provides the investors with a place to invest their money and attain profit while deriving interests 

Now that we have understood what Money Market is and the functions it plays, let us look at the various Money Market instruments.  

Money Market Instruments

Most of the Money Market instruments are regulated by the Reserve Bank of India. However, there is one exemption from this regulation- that is, Mutual Funds.  SEBI (Securities and Exchange Board of India) regulates this particular instrument of the Money market. 

The different Money Market Instruments includes-

  • Reverse Repo is widely known as Repurchase Agreement, which are short-term loans offered for purchase and redeeming
  • The Treasury Bill is considered to be the safest Money market instrument, issued by the Central government directly. The buying value of the bill and maturity value are the two important elements. The difference between these two elements is the buyer’s profit
  • Cash Management bills aim at accommodating the provisional discrepancy of cash flow of the government. These bills are short-term instruments and are non-standard and discounted bills
  • Commercial Papers are similar to the Bill of Exchange but are issued by business organizations to accommodate their brief needs.  The difference in the face value and the price is said to be the profit of the investor
  • The document that vows future payment is known as Banker’s acceptance. It is verified by commercial banks
  • Term Deposits are also Money Market instruments and are accepted by commercial banks. These are usually issued with the help of a promissory note

Conclusion

Markets are a place that deals with the buying and selling of commodities. In the financial world, markets are of two types- Capital Market and Money Market. Capital Markets aims at long-term investing, while Money Market aims at short-term lending. Money Markets are not well structured as the Capital Market. These markets are the best options for investing liquid assets. It is of two types- Organized and Organized Money Market. The Money Market helps in the policy-making function of the Reserve Bank of India. The various Money Market Instruments include- Treasury Bills, Commercial Papers, Term Deposits, Cash Management Bills, and Reverse Repo. Like any other market, it contributes significantly to the stability of the economy, which leads to the development of the economy.