Money markets are understood to be organized funds exchanges. This allows members to lend and borrow cash for a year max. These markets were popularized on 2 fronts. The first is the personal investor who wants to be able to invest a smaller amount of money while being able to take advantage of considerable safety and liquidity. The second front is that of governments, banks, and other businesses who have found this to be an efficient method to transact funds.

Objective

The reason for money markets is to generate funds. That is true for both the private and public sectors. The attraction for most investors is the short-term money markets maturity that vary from 24 hours to a full year. Still, the norm is approximately 90 days. It’s possible for investors to offer their investments ahead of the maturity, but they will lose the interest they could have earned if they had waited for them to mature.

Markets are bought and sold in secondary markets too. Secondary markets are where investors buy and sell assets and securities from investors as opposed to the issuing organizations. While there is a loose association of these markets in New York City, these centralized markets really do not have a centralized location.

Kinds of Tools

Most products are specialized which means they’re regularly traded with large finance organizations and banks who have a better knowledge of the money market. Typical money market tools include: contracts and future options, shares n market instruments, discount window, repurchase agreements, federal funds, and negotiable deposits certificates.

Other products also have: commercial paper, short-term municipal securities, mutual funds, and bankers’ acceptances.
Short-Term Investment Pools

Short-term investment funds of local government pools, bank trust departments, and money market mutual funds are all covered under the umbrella of short-term investment pools. They combine different money market tools. As a result, highly specialized money market products available and understandable to traders do not possess the knowledge needed for these tools. Another advantage is the minimum of $100,000 is not needed unlike it’s to buy other money market products.

Money market mutual funds are handled by bank trust departments and therefore are an assessable short-term investment pool. This kind of mutual fund is either labeled as taxable exempt funds or taxable funds. Tax-exempt funds are free of all federal tax because the money is invested in securities that are issued by local and state governments. Taxable funds are securities investments which include things like commercial papers and treasury bills; his demands investors to pay federal tax.

Eurodollars

The word Eurodollars is a bit deceiving, because it does not have much to do with Europe. They are actually United States dollars that are deposited in banks outside America. They get their name from the evolution of the market in Europe, but can be held in any country all over the world. Banks benefit from them because they can be operated on a narrow margin and are somewhat regulation free. This means banks can circumvent the costs associated with regulations. One of the drawbacks of Eurodollar deposits is that they usually require millions and it reaches maturity in a number of months. Because of this, the largest organizations have the ability to attain the Eurodollar market. This type of investment has less liquidity than other money markets, although they do offer higher yields.

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