Network of banks, discount houses, institutional investors, and money dealers who borrow and lend among themselves for the short-term (typically 90 days). Money markets also trade in highly liquid financial instruments with maturities less than 90 days to one year (such as bankers’ acceptance, certificates of deposit, and commercial paper, and government securities with maturities less than three years (such as treasury bills, foreign exchange, and bullion. Unlike organized markets such as stock exchanges money markets are largely unregulated and informal where most transactions are conducted over phone, fax, or online.
Long-term borrowing and lending markets are called capital markets. The money market is e short term debt market that deals with different money market instruments. Market for Short-Term Debt Instruments-negotiable certificates of deposit, Eurodollar certificates of deposit, commercial paper, banker’s acceptances, Treasury bills, and discount notes of the Federal Home Loan Bank, Federal National Mortgage Association, and Federal Farm Credit System, among others. Federal funds borrowings between banks, bank borrowings from the Federal Reserve Bank Window, and various forms of repurchase agreements are also elements of the money market.
What these instruments have in common are safety and Liquidity. The money market operates through dealers, Money Center Banks, and the Open Market Trading Desk at the New York Federal Reserve Bank. New York City is the leading money market, followed by London and Tokyo. The dealers in the important money markets are in constant communication with each other and with major borrowers and investors to take advantage of Arbitrage opportunities, a practice which helps keep prices uniform worldwide.
The money market is a component of the financial markets for assets involved in short-term borrowing and lending with original maturities of one year or shorter time frames. Trading in the money markets involves Treasury bills, commercial paper, bankers’ acceptances, certificates of deposit, federal funds, and short-lived mortgage-backed and asset-backed securities.  It provides liquidity funding for the global financial system. | | Overview The money market consists of financial institutions and dealers in money or credit who wish to either borrow or lend.
Participants borrow and lend for short periods of time, typically up to thirteen months. Money market trades in short-term financial instruments commonly called “paper. ” This contrasts with the capital market for longer-term funding, which is supplied by bonds and equity. The core of the money market consists of banks borrowing and lending to each other, using commercial paper, repurchase agreements and similar instruments. These instruments are often benchmarked to (i. e. priced by reference to) the London Interbank Offered Rate (LIBOR) for the appropriate term and currency.
Finance companies, such as GMAC, typically fund themselves by issuing large amounts of asset-backed commercial paper (ABCP) which is secured by the pledge of eligible assets into an ABCP conduit. Examples of eligible assets include auto loans, credit card receivables, residential/commercial mortgage loans, mortgage-backed securities and similar financial assets. Certain large corporations with strong credit ratings, such as General Electric, issue commercial paper on their own credit. Other large corporations arrange for banks to issue commercial paper on their behalf via commercial paper lines.
In the United States, federal, state and local governments all issue paper to meet funding needs. States and local governments issue municipal paper, while the US Treasury issues Treasury bills to fund the US public debt. • Trading companies often purchase bankers’ acceptances to be tendered for payment to overseas suppliers. • Retail and institutional money market funds • Banks • Central banks • Cash management programs • Arbitrage ABCP conduits, which seek to buy higher yielding paper, while themselves selling cheaper paper. • Merchant Banks