Question

Discuss the characteristics of money market.

Answer 1

Characteristics of money market:

1. Money market is divided into two parts. They are:
   (a) Organized money market and
   (b) Unorganized money market.
2. Money market is a market for short term assets or instruments, whose maturity period is one year or less.
3. Credit worthiness of participants in money market is important so that both the borrower and lender can trade at ease.
4. Money market is not a fixed physical location but a collective structure of various institutions like Reserve Bank of India, commercial banks, financial institutions, mutual funds, insurance companies, indigenous bankers, shroffs, etc.
5. It is a market of financial instruments which can easily be converted into cash (i.e. are highly liquid). For example, treasury bills, call money, etc.
6. Sub-branches of money market also develop with economic and technological development, such as call money market, bond market, treasury bills market, etc.
7. Most of the financial instruments are debt instruments. Element of risk is less as compared to other financial instruments.
8. The success and operation of money market depends on the banking system and financial institutions.