The Money Markets Handbook: A Practitioner's Guide

Money Markets: An Introduction

The money markets are part of the global financial system. The various markets that make up this system are all, in one form or another, channels through which fund flows between the users and the suppliers of capital move. This flow of funds takes place in different markets depending on the characteristics of the funds themselves and the needs of the market participants. The money market is where transactions in short-term funds takes place. This is the borrowing and lending of funds that have a repayment: date of within 12 months of the loan start date. However the money market is not just made up of loans or indeed of cash products. As we shall see, there is a wide range of instruments used in the market, both cash and derivative, and it is these products and the uses to which they are put that is the focus of this book.

So, the money market is the centre in which market participants, which can be governments, banks, other corporate institutions, fund managers or individuals, meet to transform a short-term shortage (or surplus) of funds into a surplus (or shortage). As such the money market enables market participants to manage their liquidity positions. A market instrument that has a maturity of one year or less is defined as a money market product. Instruments with maturities greater than one year, such as bonds, are traded in the capital market.

The suppliers of funds in financial systems worldwide are generally commercial banks, as well as ...