Money markets are defined as organized exchanges of funds. This gives participants to lend and borrow cash for a maximum of a year. These markets were prominent on two fronts. The 1st is the personal investor who wants to be able to invest a smaller amount of money while being able to take advantage of considerable safety and liquidity. The second front is that of governments, banks, and other businesses who have found this to be a simple yet effective method to transact funds.

Purpose

The main reason for money markets is to make funds. That is true for both the public and private sectors. The attraction for some investors is the short-term maturity of money markets that range from Twenty four hours to a full year. Still, the norm is approximately three months. It’s possible for investors to offer their investments prior to the maturity, but they will lose the interest they could have earned if they had waited for them to mature.

Markets are bought and sold in secondary markets also. Secondary markets are where investors buy and sell assets and securities from investors as opposed to the issuing organizations. While there is a loose association of these markets in New York City, these centralized markets really do not have a centralized location.

Types of Instruments

Most products are specialised meaning these are regularly traded with large banks and finance organizations who have a good comprehension of the money market. Popular money market tools include: contracts and future options, shares n market instruments, discount window, repurchase agreements, federal funds, and negotiable deposits certificates.

Other products also include things like: short term municipal securities, commercial paper, mutual funds, and bankers’ acceptances.
Short-Term Investment Pools

Short-term investment funds of local government pools, bank trust departments, and money market mutual funds are all covered under the umbrella of short-term investment pools. They unite different money market instruments. As a result, highly specialized money market products available and understandable to traders do not have the understanding needed for these tools. One other benefit is the minimum of $100,000 isn’t needed unlike it is to purchase other money market products.

Money market mutual funds are operated by bank trust departments and therefore are an assessable short-term investment pool. This kind of mutual fund is either classified as taxable funds or taxable exempt funds. Tax-exempt funds are free from all federal tax since the money is invested in securities that are given by local and state governments. Taxable funds are securities investments which include commercial papers and treasury bills; his demands investors to pay for federal tax.

Eurodollars

The word Eurodollars is a bit deceiving, because it does not have much related to Europe. They are in fact United States dollars that are deposited in banks outside America. They get their name from the evolution of the market in Europe, but can be held in any country around the globe. Banks benefit from them because they can be operated on a narrow margin and are somewhat regulation free. This implies banks can circumvent the costs associated with regulations. One of the drawbacks of Eurodollar deposits is that they usually require millions and it reaches maturity in several months. For this reason, the largest organizations are able to attain the Eurodollar market. This type of investment has less liquidity than other money markets, although they do offer higher yields.

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