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The main objective of the commercial banks is to earn income from its reserves as well as maintain liquidity to meet the uncertain cash demand of the depositors.
There are several money market instruments in most Western countries, including treasury bills, commercial paper, bankers' acceptances, deposits, certificates of deposit, bills of exchange, repurchase agreements, federal funds, and short-lived mortgage- and asset-backed securities.
The money market consists of financial institutions and dealers in money or credit who wish to either borrow or lend.
This contrasts with the capital market for longer-term funding, which is supplied by bonds and equity.
The core of the money market consists of interbank lending—banks borrowing and lending to each other using commercial paper, repurchase agreements and similar instruments.
This means the bond’s issue size is free from the restriction of 40 percent net asset value.
This helps enrich the market structures of interest rates and risks and liquidity, and generates a market yield curve that covers short-, mid- and long-term financial products.
Though the central bank can function and influence the banking system in the absence of a money market, the existence of a developed money market smooths the functioning and increases the efficiency of the central bank.
Money markets help central banks in two ways: There are two types of instruments in the fixed income market that pay interest at maturity, instead of as coupons—discount instruments and accrual instruments.
Money market is an important part of the economy which provides short-term fund.
The money market is the part of financial market which deals in the borrowing and lending of short-term loans generally for a period of less than or equal to 365 days.