Role of Money Market-Financial Market Analysis

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Topics: Bank, Economics
Who are the major participants of money market describe the role they play in maintaining liquidity in the money market?
'Money Market
Involves a sector of the financial market where financial instruments with a high level of liquidity and very short maturities periods are traded. The money market is used by members as a means of borrowing and lending money for a short period of time, which may involve several days to just under a year. Financial instruments traded on the money market consist of bankers acceptances, negotiable certificates of deposit (CDs), commercial paper, U.S. Treasury bills, federal funds, municipal notes, and repurchase agreements (repos).
There are many participants in the money market. They include companies raising money by selling commercial paper into the market to an investor who purchasing CDs as a safe place to park money in the short term. The money market is typically seen as a safe place to put money due the highly liquid nature of the securities and short maturities, but there are risks in the market that any investor needs to be aware of including the risk of default on securities such as commercial paper.
The major purpose of money markets is to transfer money from lenders to borrowers. Participants in the money market provide the services of borrowing and lending for periods of a year or less. In the United States the money market is very efficient in that it enables large sums of funds to be transferred quickly and at a low cost from one economic unit to the next for short periods of time These economic units include commercial banks, financial institutions, business and government.
Money markets are required because receipts of economic units do not coincide with their expenditures. The financial intermediaries involved in money markets can hold money balances to cover planned expenditures that can be maintained independently of cash receipts. These balances for transactions are held the form of currency, demand

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