The word money market is a general term for the markets in which banks/FIs lend and borrow money or money equivalent from each other like call money, term placement, commercial papers or similar instruments or enter into agreement such as Repo and Reverse Repo for managing day to day liquidity as well as profit making. This market normally trades in maturities up to one year. It provides short to medium term liquidity. Essentially this market is for short -term financial assets that are close substitutes for money.
The important feature of money market instrument is that it is liquid and can be turned over quickly at low cost and provides an avenue for equilibrating the short-term surplus funds of lenders and the requirements of borrowers. It provides an equilibrating mechanism for evening out short-term surpluses and deficits. It also provides reasonable access to users of short-term money to meet their requirements at a realistic price.
- Call money/Notice money/ Overnight deposits
- Assured Liquidity Support (ALS)/ Repurchase Agreement (Repo)/ Reverse Repo
- FC-BDT Swap
- Term Deposits/Placement
- Commercial Paper (CP)
- Interest Rate Swap (Plain Vanilla, Collar, Cap etc.)