Douglas Greenwald & Associates (1983) defined money market as a term used in designating the financial institutions which handle the purchase, sale and transfer of short-term credit instruments. It includes the entire machinery for the channelling of short-term funds. It is concerned primarily with small business needs for working capital, individual’s borrowing and government short-term obligations.
The money market is not the same as the long-term market or capital market which devotes its attention to dealings in bonds, corporate stocks and mortgage facilities. According to Odeyomi (2002), it allows for short-term funds for a period less than 3 years and deals with highly marketable low risk instruments. It is a market where money is bought and sold. From there, Bridging fund can be raised for a project before a mortgage or long term facility is secured.
The money market is not a single, homogeneous market but consists of a number of distinct markets, each of which deals in different types of credit according to the instrument specialisation. These include:
- Commercial-paper market: This is the most important of them. It handles the promissory notes of business organisations. Formally, two types of commercial papers could be identified. The first type is the ordinary trade papers which well-established liability companies issued in order to secure loans by approaching wealthy individuals. Banks and discount houses do also accept their commercial papers. The other type is no more in use, was the one issued by Marketing Boards. It was to assist the Central Bank in raising funds to finance exporting of crops. Marketing boards are no more in existence; it has since stopped being in use.
- The collateral-loan market: This deals in loan granted on the security of bonds and other forms of property. That is, companies, in order to raise fund, do approach wealthy individuals who can easily loan them, most especially as a result of the goodwill they are enjoying. It is also referred to as broker’s loan.
- The acceptance market: Here, banker’s acceptances are traded. A banker’s acceptance is a negotiable instrument written by a bank or trust company to pay, at a future date, a given sum of money. Once accepted, bankers’ acceptance can be used for credit financing as the banks or trust company becomes indebted to it.
- Treasury bills market: This handles short term government securities. Interested members of public, through their banks, can subscribe to buy treasury bills from the Central Bank. It lasts only for 90 days.
- Treasury certificate market: Unlike the treasury bills, treasury certificate is a government medium term security, the duration of which ranges between 12 and 24 months.
Both treasury bills and certificates are instruments which the government uses in mopping up excess liquidity in circulation in order to check inflationary trends. Others include the call money, fixed time deposit and deposit certificates (traded between banks). The major institutions operating in the money market are commercial banks, insurance companies, discount houses, finance companies, government, the Central Bank and corporate organisations.
References
Douglas Greenwald & Associates (1983). The McGraw Hill dictionary of modern economics: A handbook of terms and organisations. New York: McGraw Hill Book Company.
Odeyomi, E.S. (2002). Property and housing development. Ibadan: Property Gazette.
