TILL problems surfaced in the course of the international monetary crisis, money markets have been typically taken with no consideration as plain-vanilla, low-volatility segments of the financial system. Security: Since the issuers of cash market devices have strong credit score rankings, it mechanically means that the money devices issued by them will also be safe. Due to this fact, the money market instruments, in turn, might help the event of trade, industry and commerce within and outside the country.
As a result of these investments are associated with huge and actively traded secondary markets , you possibly can nearly always promote them prior to maturity, albeit at the worth of forgoing the interest you’d have gained by holding them till maturity.
The money market helps in the growth of the capital market, commerce and business. Treasury Payments are used as a supply of controlling liquidity in the market by the federal government. There are two kinds of instruments in the fastened income market that pay interest at maturity, as an alternative of as coupons â€”discount devices and accrual devices.
Cash markets helps the central bank in regulating liquidity in the financial system. If you happen to do make investments your funds in the money market, you’ll be able to quickly and simply safe this curiosity. Each time Authorities is in need of funds, it raises money in the market through Treasury Bills.
However, treasury bills carry zero danger. Banks may act as agents within the transaction, however they assume no principal position and are under no circumstances obligated with respect to repayment of the industrial paper. In other words, the cash market is a mechanism which facilitate the lending and borrowing of devices that are typically for a duration of less than a yr.