Short Essay on the Institutions of Money Market

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The institutions of money market deal with the short-term lending and borrowing of funds. The important institutions of money market are commercial banks, central bank, acceptance house, nonbank financial institutions, bill brokers, etc.

1. Commercial Banks:

Commercial banks are the most important constituents of the money market. They form the largest source of the short-term funds for financing trade and commerce in the country. They discount and rediscount bills of exchange and treasury bills.

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While conducting their lending operations, the commercial banks try to reconcile the two conflicting objectives of liquidity and profitability. In other words, they try to ensure that the funds not only bring high interest earnings, but also, at the same time, remain in a liquid form.

2. Central Bank:

The central bank is the apex institution in the money market of a country. It is the lender of the last resort. It means that the member banks can approach the central bank for loans and advances during emergency. Through its function as the lender of the last resort, the central bank controls the working of the money market.

3. Acceptance Houses, Discount Houses and Bill Brokers:

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Acceptance houses, discount houses and the bill brokers are the important institutions in advanced countries. Acceptance houses specialise in acceptance and guaranteeing of trade bills. Discount houses and bill brokers deal in the purchase and sale of the bills of exchange and also other types of bills.

4. Nonbank Financial Institutions:

The nonbank financial institutions, like insurance companies, saving banks, etc., also deal with short-term lending business in the money market.

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