Money Market Instruments Definition

Money market basically refers to a section of the financial market where financial instruments with high liquidity and short term maturities are traded money market has become a component of the financial market for buying and selling of securities of short term maturities of one year or less such as treasury bills and commercial papers.

Money market instruments definition. Types of money market instruments. Money market instruments are securities that provide businesses banks and the government with large amounts of low cost capital for a short time. Money market instruments are debt securities that generally give the owner the unconditional right to receive a stated fixed sum of money on a specified date. It is a financial instrument with a written promise by one party to pay to another party a definite sum of money by demand or at a specified future date although it falls in due for payment after 90 days within three days of grace.

These instruments tend to have lower returns than higher risk investments but are much safer due to being backed by the resources and. A promissory note is one of the earliest type of bills. The money market consists of financial institutions and dealers in money or credit who wish to either borrow or lend. Money market trades in short term financial instruments commonly called paper.

Money market can be understood as the market for short term funds wherein lending and borrowing of funds varies from overnight to a year it is an important part of the financial system that helps in fulfilling the short term and very short term requirements of the companies banks financial institution government agencies and so forth. Financial instruments issued by financial institutions or governments such as certificates of deposit cd s and treasury bills that are considered to be extremely low risk. These instruments usually are traded at a discount in organized markets. The short term debts and securities sold on the money markets which are known as money market instruments have maturities ranging from one day to one year and are extremely liquid.

The main characteristic of these kinds of securities is that they can be converted to cash with ease thereby preserving the cash requirements of an investor. Money market fund definition. Money market instruments are short term financing instruments aiming to increase the financial liquidity of businesses. The period is overnight a few days weeks or even months but always less than a year.

A money market fund is a type of mutual fund that invests in high quality short term debt instruments and cash equivalents. Participants borrow and lend for short periods typically up to twelve months. The discount is dependent upon the interest rate and the time remaining to maturity.