Money Market (redirected from money-market)

money market

Set of institutions, conventions, and practices whose aim is to facilitate the lending and borrowing of money on a short-term basis. The money market is, therefore, different from the capital market, which is concerned with medium- and long-term credit. The transactions that occur on the money market involve not only banknotes but assets that can be turned into cash at short notice, such as short-term government securities and bills of exchange. Though the details and mechanism of the money market vary greatly from country to country, in all cases its basic function is to enable those with surplus short-term funds to lend and those with the need for short-term credit to borrow. This function is accomplished through middlemen who provide their services for a profit. In most countries the government plays a major role in the money market, acting both as a lender and borrower and often using its position to influence the money supply and interest rates according to its monetary policy. The U.S. money market covers financial instruments ranging from bills of exchange and government securities to funds from clearinghouses and certificates of deposit. In addition, the Federal Reserve System provides considerable short-term credit directly to the banking system. The international money market facilitates the borrowing, lending, and exchange of currencies between countries.

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Money Market 

a special sphere of the loan capital market, where capital is offered for short-term loans.

As a component part of the loan capital market the money market has all the typical features of that market. Thus, unlike markets where the objects of buying and selling differ according to their use value, the money market involves a depersonalized mass of monetary capital from which all traces of origin have been erased. The uniformity of the money market is a result of both the standard monetary form in which capital on the market acts as a commodity and the high level of concentration of supply of loan capital accumulated by the credit system. At the same time the money market, like the loan capital market as a whole, typically has numerous forms and methods of transferring capital to loans. The specific features of the transactions carried out on the money market result primarily from the short terms for which loan transactions are concluded: from one day to several months, occasionally up to one year. The primary reason for this is that loans on the money market facilitate the movement of the working capital, not the fixed capital, of the industrial capitalists. They turn to the money market primarily to convert capital from a commodity to a monetary form.

The money market is involved in a broad range of economic transactions: domestic and foreign trade (discounting bank acceptances and drafts, establishing a market for Eurodollars and European currencies), replenishing the monetary reserves of credit and financial institutions (inter-bank loans, rediscounting by a central bank), and making short-term loans to large industrial companies (the “commercial paper” market). It also includes financing stock transactions and servicing the state credit system. In terms of the spheres of the application of capital, the money market includes particular elements of fictional capital and the international currency market. Commercial and industrial firms, banks and other credit and financial institutions, stock speculators, and government institutions and agencies take loans on the money market. Capitalist banks (primarily the central bank and the system of deposit banks) act as the source of capital supply for the money market. Specialized credit and financial institutions (for example, insurance companies or savings institutions) operate primarily in the sphere of long-term credit.

The money market includes credit and settlement transactions by banks, clearing houses, the stock exchange, broker and dealer firms, ministries of finance, and other institutions. Many of the transactions of the money market are carried out orally over the telephone. The center of the money market is usually located in the business section of the main financial and economic point in the country (New York in the United States, London in Great Britain, Montreal in Canada, and Zurich in Switzerland). The interest rates charged for various transactions are an important index of the state of the money market.

V. M. USOSKIN