What are the Vital Features of Money Market?

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Distinguishing features of money market are given below:

1. Constituents of Money Market:

Like other markets, money market also has three constituents: (a) It has buyers and sellers in the form of borrowers and lenders, (b) It has a commodity; it deals with short-maturity credit instruments, like commercial bills, treasury bills, etc. (c) It has a price in the form of rate of interest which is an item of cost to the borrower and return to the lender.

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2. Heterogeneous Market:

The money market is not a single homogeneous market but consists of several sub-markets, each market dealing with a specific short-term credit instrument, e.g., call money market, trade bill market, etc. Thus, it is difficult to talk about a general money market.

3. Dealers of Money Market:

The financial institutions in the money market meet the short-term needs of the borrowers. The borrowers in the money market are traders, manufactures, speculators, and even governĀ­ment institutions. The lenders in the money market are commercial banks, central banks, non-bank financial intermediaries, etc.

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4. Short-term Loans:

Money market deals with short-term loans. In a money market, the borrowers can obtain funds for periods varying from a day, a week, a month, or three to six months.

5. near-Money Assets:

Money market does not deal in money, but in short-term financial instruments or near-money assets. These assets are relatively liquid and readily marketable. The assets against which the funds can be borrowed in the money market include short-term government securities, bills of exchange, bankers’ acceptances, etc.

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6. Physical Contact Not Necessary:

Money market does not refer to a specific place where borrowers and lenders meet each other. In fact, it is not necessary that the borrowers and lenders should have personal contact with each other at a particular place.

They may carry on their negotiations through telephone or mail. Thus, money market simply relates to the arrangement which establishes direct an indirect contact between the borrowers and lenders.

7. Different from Capital Market:

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Money market is different from capital market on the basis of maturity period. Money market deals with the short-term lending and borrowing of funds, while capital market deals with medium and long-term lending and borrowing of funds.

8. Association with Big Cities:

Generally, money markets are associated with important places or localities. Almost every big city has a money market. In this way, we have London money market, New York money -market, Bombay money market, etc.

9. Change with Place and Time:

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Though the functions of money markets in different countries are broadly the same, the instruments, institutions and practices of these markets vary considerably from country to country. Money markets also change with time.

For example, in London money market, bill of exchange used to be of great importance. But, now because of change in business practices and the growth of public debt, government treasury bills have become more important.

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