Profile
Settings
Refer your friends
Sign out
Money marketing can be considered a type of loan or borrowing of money for a certain period of fixed time which is always less than a year. One of the good examples of this would be the pay later option currently popular among the citizens. Although pay later does not do justice to define money marketing entirely but can be considered the most short example of it. Many applications and banks provide such options these days. Money marketing initially was for businesses which need a continuous supply of goods and can not wait around for the flow of money so sometimes they take a loan and pay later at a fixed interest rate.
Although there are many ways we can trade from treasury bills to commercial paper, or certificates of deposit or credit enhancement, federal funds to discount windows and much more . Some of these methods are used in emergency cases only like discount windows.
Major Instrument Of Money Market Available
It is very difficult to cover all the instruments available in the money market for exchange,but we are going to try and cover the some major types here:
Treasury Bills
This is a type of money instrument which is issued by the government for a short period of time. This time can be weeks, days or months but needs to be less than a year. The important point here to note about treasury bills will be that more the time, more the interests.
Government issues these treasury bills and in most cases are tax free but be sure to check on the government website before investing. The rate of purchase is always less than the value of purchase. For example if the bill is $5000 then the purchase would be $4500 or less.
Commercial Paper
This is a kind of promise from one person or organization to another person or organization in terms of finance. This is highly insecure in terms of liability but at the same time due to its short term nature does not possess much risk. Commercial paper is used to secure funds for various purposes but the root remains to meet the need of funds which can not be met at the allocated moment.
Although in some countries a minimum amount is set for the issue of commercial paper like in India it is Rs 5 Lakh or more, but in some countries like the US there is no minimum limit.One other advantage can be that anyone can issue a commercial paper token for anyone.
Certificate of Deposit
These are issued virtually and have no physical presence, but that does not mean these investments are not as important as the Commercial paper of T-Bill.These certificates are most commonly issued by banks or credit organizations on short terms such as weeks, days or months but mostly less than one year. In some cases it can extend to 3 year.
When investing in certificates of deposit, one should always look for all the options available as your regular bank can provide a penny for your amount and the union bank will provide a dollar.
Call Money
Have you ever wondered how banks manage their day to day cash flow on a busy day. Call money can be one of such ways. This allows commercial banks or organizations to borrow from each other.
Most of the time they have a high interest rate from the market and are suggested to use only in case of emergencies.
Benefits of Money Market Instruments
- No geographical limitation: This is a financial market and is open to everyone around the globe and anyone can invest anywhere in most cases. This is not limited to one location per person.
- Focus on capital needs: This always focuses on continuous flow of capital in an organization and as such is always short term and high interest. If you are someone who works in any business , you must know that a regular flow of capital is very important for everyone involved from getting raw materials to delivering final products.
- Returns: As these are for short term they have fixed returns in most cases. Mostly the purchase value is less than actual value which returns in giving high interest at low investment rate.
- Liquidity: These investments are highly liquidiable and hence are secure in most cases.
- Manage finances: Imagine a huge pile of money simply sitting in your account and now imagine the same amount increasing and giving returns. Which option is better ?
Of Course the money which gives you interest.The money market helps in balancing as the person with surplus can help the person with the need and in return earn some interest.
Need of Instruments of money market
Money market is quite important and essential for the continuous flow of money in the market. You can say it is the very bone of some business and helps them to continuously grow. Here are few important points that needs to be mentioned:
- Flow of capital: Balance is very important in the market as the very essence of the market depends on this. These instruments maintain the balance of expense and purchase of capital within a year.
- These instruments help immensely in growth of business and branching out.
- This guides the implementation and making of any policy regarding short term investment for everyone involved from bank organizations to government.
- As this is always a short term investment , the interest rate helps the market in neutralizing all the investments all along and increasing the capital.
Future Scope
Money market is still an ongoing developing market. Current instruments of the market such as Treasury bills or certificates of deposit are just few in this market. There are always new instruments being introduced. Along with new instruments new laws for maintaining these instruments are also being introduced.
This being said, there is so much more that can be done in this market. Although it is developing rapidly, this has a very long road ahead.
Conclusion
Investing in the money market is important for maintaining the flow of capital throughout the entire business or organization. There are various instruments available in the market for one to choose from like Treasure bill (T-bill) , certificate of deposit and much more.But one should be very mindful of the investment as such these are short term and affects credibility a lot more than long term investment. As the duration is less, credibility is of utmost importance while investing. But these are also chances to get some good interest on your deposited money.
So, we would like to end this with the understanding that the money market is less volatile, short term investment where anyone can invest with correct knowledge.
