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Encyclopedia > Money market account

The money market is a general term for the markets in which banks lend to and borrow from each other, trade financial instruments such as Certificates of Deposit (CDs) or enter agreements such as Repos and Reverses. The market normally trades in maturities up to one year. It provides short to medium term liquidity in the global financial system. Derivatives of the money market include forward rate agreements (FRAs) and futures.

Trading takes place between banks in the "money centres" (New York and London primarily, also Chicago, Frankfurt, Paris, Singapore, Hong Kong, Tokyo, Toronto, Sydney).

Common Money Market Instruments

Bankers' Acceptance. A draft or bill of exchange accepted by a bank to guarantee payment of the bill.

Certificate of Deposit. A time deposit with a specific maturity date shown on a certificate; large-denomination certificates of deposits can be sold before maturity.

Commercial Paper. An unsecured promissory note with a fixed maturity of one to 270 days; usually it is sold at a discount from face value.

Eurodollar Deposit. Dollar deposits in a U.S. bank branch or a foreign bank located outside the United States.

Federal Agency Short-Term Securities. Short-term securities issued by federally sponsored agencies such as the Farm Credit System, the Federal Home Loan Banks and the Federal National Mortgage Association.

Federal Funds. Interest-bearing deposits held by banks and other depository institutions at the Federal Reserve; these are immediately available funds that institutions borrow or lend, usually on an overnight basis. They are lent for the federal funds rate.

Municipal Notes. Short-term notes issued by municipalities in anticipation of tax receipts or other revenues.

Repurchase Agreements. Short-term loans—normally for less than two weeks and frequently for one day—arranged by selling securities to an investor with an agreement to repurchase them at a fixed price on a fixed date.

Treasury Bills. Short-term debt obligations of the U.S. Treasury that are issued to mature in 3 to 12 months.

See also

External links

  • Instruments of the Money Market (http://www.rich.frb.org/pubs/instruments/)
  • St. Louis Fed: Monetary Aggregates (http://research.stlouisfed.org/aggreg/)

  Results from FactBites:
Mutual Fund Education Alliance - News & Commentary - Fund Focus - Money Markets Defined (1360 words)
Money market funds are diversified portfolios that are composed of short-term securities of creditworthy corporations, banks and other financial institutions, and federal, state, and local governments.
And since the money market fund is a member of a mutual fund family, you can usually exchange shares into a stock or bond fund at no charge with a telephone call.
Still others invest a portion of their investing dollars in a money market fund to offset the risk of their stock and bond fund holdings, whose share prices are subject to sharp and sudden fluctuations in value.
  More results at FactBites »



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