Learning about money market
The money market is the place where all the financial instruments with short-term maturities and high liquidity are traded. This market is filled with those participants who want to borrow or lend for a short-term wherein the maturity date will range from one day to one year. The commonly used money market instruments are a certificate of deposits, banker’s acceptance, treasury bills, municipal notes, commercial paper, etc. it is quite different from currency market or any other market. In the currency market or digital currency market, one can earn quick money very easily by trading online in different currencies.
Participants of the money market
The participants of this money market include banks or financial institutions which lends to each other, large corporations that raise funds through the selling of commercial paper in the market, investors who buy bank commercial deposits as a means to park their funds safely for a short period.
In order to buy the treasury bills, only the primary dealers have the accessibility to buy directly from them. The individuals have to approach the dealers if they wish to invest in these bills.
Capital market Vs money market
The money market is different from the capital market. In the capital market, only the purchase and sale of long-term financial instruments takes place. Here both the debt instruments and equity instruments are transacted. The organizations opt for participating in the capital market whenever they are in need of the huge amount of money for a long-term period. The purpose of choosing the capital market will be to fund their expansion or a new business venture whereas in money market the organizations will approach to raise fund to meet some immediate requirement or to meet the working capital requirement. They will aim at repaying the amount in a short period as they don’t want to have a long-term responsibility.
People who are less tolerant to risk will opt to invest in the money market as it is considered as one of the safest and secure ways to protect their funds while in the capital market only people who are ready to take up risk will participate. It gives a high rate of return to the money invested. But the rate of interest in money market instruments compared to capital market is quite less.
The decision to invest in a money market or capital market purely depends from individual to individual. Whichever the options one chooses, you need to keep a regular check on the funds after it is invested.