Conceptual Framework of money market
- The money market is market for short-term financial assets which can be turned over quickly at low cost. It provides an avenue for equilibrating the short-term surplus funds of lenders and the requirements of borrowers. It, thus, provides a reasonable access to the users of short term money to meet their requirements at realistic prices.
- Short term financial asset in this context may be construed as any financial asset which can be quickly converted into money with minimum transaction cost within a period of one year and are termed as close substitute for money or near money.
- The money market thus may be defined as a centre in which financial institutions congregate for the purpose of dealing impersonally in monetary assets. In a wider spectrum, a money market can be defined as a market for short-term money and financial assets that are near substitutes for money.
- The term short-term means generally a period upto one year and near substitutes to money is used to denote any financial asset which can be quickly converted into money with minimum transaction cost.
- This is a market for borrowing and lending short-term funds. Banks, financial institutions, investment institutions, and corporates attempt to manage the mismatch between inflow and outflow of funds by lending in or borrowing from the money market.
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