What are the Sources of Funds Supply to the New York Money Market?

Funds are supplied to the New York money market from the following sources.

1. Commercial Banks:

Commercial banks mainly concentrate on granting very short-term (i.e., one or two-day) loans to other banks (known as Federal Funds transactions), to brokers and dealers in short-term U.S. government securities. The banks earn interest on these loans and call back money on short notice.

2. Other Financial Institutions:

Other financial institutions such as insurance companies, pension funds, saving banks, saving and loan associations, also supply large funds to the money market. Primarily these institutions are interested in the long-term securities as a means of providing liquidity

3. Business Firms:

Business firms profitably invest their temporary surplus funds in short-term securities, mostly treasury bills. They also provide funds to other business firms through purchase of commercial papers.

4. Foreigners:

Foreigners accumulate dollars through trade with America. They largely utilise these dollars in purchasing short-term Treasury securities.

5. Federal Reserve:

Federal Reserve may operate either as a supplier or as an observer of short-term funds. It all depends upon the economic and money market conditions.

6. Government:

Sometimes, States and local governments may supply funds to the money market through the purchase of short- terms securities.

7. Individuals:

Of late, individuals have become more interested and more active in the money market. They invest directly in Treasury bills and other government securities and also purchase other money market instruments.

8. Money Market Mutual Funds:

Individual investors with relatively small savings participate in the money market through money market mutual funds. The investment of these funds is entirely in the money market instruments.