Money Market

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The money market is within the financial market for short term lending and borrowing usually within a year. In contrast, the capital market is for long term loans – it includes the securities markets: stock market and bond market. The capital market is made up of the primary market and the secondary market which includes investors and trading securities. The money market allows banks to borrow and lend from one another using short term financial mechanisms like CD’s (certificates of deposit), and repurchase agreements or repos. As the banks use the money market it provides short term liquidity in the global financial system. Market liquidity is the ability to quickly buy or sell something without much change in the price. The global financial system, or GFS, includes financial institutions that act on an international level such as International Monetary Fund, or Bank for International Settlements. Derivatives of the money market consist of FRA’s, or forward rate agreements, and short term interest rate futures. Trading in the money market occurs between banks in major money centers such as New York, Paris, Hong Kong, and London among others.