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Question
Justify the following statement.
Money market makes available short term finance through different instruments.
Solution
- In the money market, lending and borrowing of funds take place for a short period of time, which may vary from one day to a year.
- Financial instruments in this market can be easily converted into cash without loss of time and value.
- In other words, money market deals with only those financial instruments which are immediate substitute for money.
- Some of the instruments used in the money market are call and notice money, treasury bills, trade/ commercial bills, commercial papers, certificates of deposits, government securities, repurchase agreements, Money Market Mutual Funds, etc.
- All these instruments have a maturity period of less than a year
- Hence, the money market makes available short-term finance through different instruments.
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