Last Updated on 16/01/2026
Money Market is a segment of the financial market where short-term funds are borrowed and lent, usually for periods of less than one year. It is mainly used to manage liquidity and meet short-term financing needs, rather than for long-term investment.
Key characteristics
- Short maturity: Overnight to under 1 year
- Low risk & high liquidity
- Large transaction sizes
- Lower returns compared to capital markets
Main participants
- Central banks
- Commercial banks
- Financial institutions
- Corporations
- Governments
Common money market instruments
- Treasury Bills (T-Bills): Short-term government securities
- Commercial Paper (CP): Unsecured short-term corporate debt
- Certificates of Deposit (CDs): Time deposits issued by banks
- Repurchase Agreements (Repos): Short-term borrowing using securities as collateral
- Interbank loans: Loans between banks
Functions of the money market
In short, the money market keeps the financial system running smoothly by ensuring that cash is available where and when it’s needed.
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