Topic: money market

By,
S.Sharmila.
ll bcom ca
The money market is a segment of the financial
market in which financial instruments with high
liquidity and very short maturities are traded.
Money market has become a component of the financial
market for buying and selling of securities of short-term
maturities, of one year or less, such as treasury bills and
commercial papers. Over-the-counter trading is done in
the money market and it is a wholesale process.
It is a wholesale market, as the transaction volume is large.
Trading takes place over the telephone, after which written confirmation is
done by way of e-mails.
Participants include banks, mutual funds, investment institutions and
Central Banks.
There is an impersonal relationship between the participants in the money
market, and so, pure competition exists.
Money market operations focus on a particular area, which serves a region or
an area. On the basis of the market size and needs, the area may differ.
The three basic functions of money market are:
It provides a balancing tool for equating the demand for and supply
of short term funds.
It provides a centre for the intervention of central bank, for
controlling liquidity and general interest rate level. term funds, to fulfil
their requirements, at a reasonable market clearing price
It provides a proper reach to the suppliers and users of the short .
I. Rate of Interest higher than other
Taking the name of any type of bank account – whether normal savings
account or passbook savings account, money market account pays
higher interest rates than all of them, given you maintain a minimum
balance. In order to make the money market account accumulate more
profit, the interest is compounded and credited monthly.
II. Lower Risks
Money Market accounts are insured by FDIC
for up to $250,000 limit per account. This
makes money market accounts low-risk and
safe investments attracting investors as there is
safety against loss of deposit

III. Easy Accessibility

Money market accounts are accessible through
transfers, checks and ATMs by their account
holders. However, there is a limit to the
number of transactions done and transfers
made per month.
I. It requires high balance
Commerce Bank’s Premium Money Market Account terms to maintain
an average daily balance of $5,000. Bank of America requires a person
to keep a minimum balance of $2,500 in their money market account.
While a lot of banks ask to maintain a minimum balance, there are
some which do not require any minimum balance.
II. Bank limits the number of transaction and
transfers made

Under the federal banking regulations, a number

of banks across the country apply a restriction on
the number of monthly transactions and transfers.
The National Alliance Bank, for example, allows
only six withdrawals per statement cycle.
Commerce Bank, too, allows not more than six
transfers or withdrawals in a month. This might
not seem to be a problem otherwise but in a case
of emergency, it can cause complications.
III. Swings in Interest Rate and extra
fees.

Interest rates applied on a money market

account are of variable nature. These
interest rate changes due to external
fluctuation in general market interest rates.
Above this, banks and credit unions offering
money market accounts charge fees to
maintain accounts and for transactions and
various financial services. All these factors
somewhat lower the overall value of money
market account