Chapter 10 - Introduction to the money market. This chapter has presented, first of all, a broad overview of one of the most important components of any financial system, the money market. The chapter then explores the roles played by governments and security dealers in keeping the money market functioning efficiently. | Money and Capital Markets 10 C h a p t e r Eighth Edition Financial Institutions and Instruments in a Global Marketplace Peter S. Rose McGraw Hill / Irwin Slides by Yee-Tien (Ted) Fu Introduction to the Money Market Learning Objectives To understand the many roles and functions performed by the money market. To identify the key money market players. To see how money market loans and securities differ from other financial services and instruments in the financial system. To appreciate the importance of speed and efficiency to money market participants and to learn how risk is handled. Introduction All the transactions carried out in the financial markets seem to be basically the same: borrowers issue securities that lenders buy. However, the different purposes for which money is borrowed can result in the creation of different kinds of financial assets having different maturities, risks, etc. For instance, the money market is the market for short-term (one year or less) credit. . | Money and Capital Markets 10 C h a p t e r Eighth Edition Financial Institutions and Instruments in a Global Marketplace Peter S. Rose McGraw Hill / Irwin Slides by Yee-Tien (Ted) Fu Introduction to the Money Market Learning Objectives To understand the many roles and functions performed by the money market. To identify the key money market players. To see how money market loans and securities differ from other financial services and instruments in the financial system. To appreciate the importance of speed and efficiency to money market participants and to learn how risk is handled. Introduction All the transactions carried out in the financial markets seem to be basically the same: borrowers issue securities that lenders buy. However, the different purposes for which money is borrowed can result in the creation of different kinds of financial assets having different maturities, risks, etc. For instance, the money market is the market for short-term (one year or less) credit. Characteristics of the Money Market The money market is the mechanism through which holders of temporary cash surpluses meet holders of temporary cash deficits. The money market arises because for most individuals and institutions, cash inflows and outflows are rarely in perfect harmony with each other, and the holding of idle surplus cash is expensive. Borrowers and Lenders in the Money Market Central Banks (supplying funds and information and promoting market stability) Corporate Borrowers & Cash-Management Customers Needing to Invest Cash Surpluses Security Dealers & Brokers Money Center Banks Nonbank Financial Institutions (mutual funds, insurers, etc.) Government Treasuries (borrowing and redeeming securities) Characteristics of the Money Market The key money market instruments include: Treasury bills and short-term government notes Federal agency notes Federal funds CDs and eurocurrency deposits Discount window loans Commercial paper and bankers’ acceptances Financial futures .
