CHAPTER 6 The Money Markets

Money-market securities are securities with maturities of up to 12 months, so they are short-term debt obligations. Money-market debt is an important part of the global financial markets, and facilitates the smooth running of the banking industry as well as providing working capital for industrial and commercial corporate institutions. The market allows issuers, who are financial organisations as well as corporates, to raise funds for short-term periods at relatively low interest rates. These issuers include sovereign governments, who issue Treasury bills, corporates issuing commercial paper, and banks issuing bills and certificates of deposit. At the same time, investors are attracted to the market because the instruments are often liquid and may carry relatively low credit risk. Investors in the money market include banks, local authorities, corporations, money-market investment funds, and individuals; however, the money market essentially is a wholesale market, and the denominations of individual instruments are relatively large.

Although the money market has traditionally been defined as the market for instruments maturing in one year or less, frequently the money-market desks of banks trade instruments with maturities of up to two years, both cash and off-balance-sheet.1 In addition to the cash instruments that go to make up the market, the money markets also consist of a wide range of over-the-counter off-balance-sheet derivative instruments. ...

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