Although there are two types of financial markets, namely, the capital market and the money market., but in this article, I will be talking about money market. Now taking a look at the money market, money market is that aspect of financial market, whose transactions is all about lending and borrowing, and its transactions revolves round short team loans, which takes a period of say, less than a year or a period of one year. It does not go beyond short team loans of one year.
What Is Money Market?
A money market is a system of financial transactions, whereby, short team money are loaned, and at the same time borrowed. Usually in a money market, a large portion of financial transactions can be degraded.
Although money market is different from every other financial market, but it complements commercial banking transactions for example.
However, the above definition of money market has given us some basic features of a money market. In money market, you have a proper system of banking, with financial apparatus used in money market transactions, though financial transactions in money market is of short team, but there is efficient utilization of money in money market.
Functions Of Money Market In Nigeria
Money market plays a significant role in economic development, its functions cannot be underestimated. Do not forget, I have said that, money market deals with short team financial transactions, however, it does make provision for the adjustment of liquidity financial houses, sometimes to business organizations, sometimes too, to non financial houses. Nevertheless, with its numerous functions, I will be discussing quite a member of them in this article.
Money market in a sense do maintained monetary equilibrium. For money market to maintain monetary equilibrium simply means that in money market, there is a balance between the demand for funds and the supply of funds, usually for short team financial transactions.
Therefore, in money market, keeping this balance between the demand and supply of money, though in short team basis is a function of the money market.
Promotes Economic Development
Money market encourages and promotes economic development through its financial transactions. This is obvious in that, in money market money is surplus and is readily available for any sector of the economy to access funds from.
Many who are in business would like to borrow money from the money market, and individuals and institutions would be willing to lend funds to those businesses seeking for loans to expand their businesses.
Besides, what seems to make money market boost economy is that its financial transactions is on short team financial basis and businesses would be willing to lend or borrow money from the money market.
Other sectors of the economy, such as the agricultural sector, and small and medium enterprises, and small scale industries would be in readiness to access funds from the money market. So from all these financial transactions in the money market, the likelihood is that, the economy is bound to grow.
Provision Of Assistant To Trade And Industry
No business can thrive without finance to fund such business. Money market is known for making funds available for businesses.
In the case of boosting trade and industry, what the money market does is to make provision for financial assistance by way of helping trade and industry fly.
Financial provided by money market to trade and industry is sometimes enormous, the money is always adequate and surplus so as to allow for cash flow in these businesses, once this happened, trade and industry are likely to explode, expand and grow thus, making it easy for trade and industry to make their profit and subsequently, pay back their loans.
Apart from such financial assistance from money market to trade and industry, the money market also do make provision for facilities, such as discounting bill of exchange for these businesses. Therefore, in a sentence, the money market do provides assistance or help for trade and industry
Helps Implement Monetary Policy
Another function of the money market is that it helps in implementing monetary policy. Helping to implement monetary policy, the money market is doing a great deal of good to the economy, by providing directive and some mechanisms for the purpose of implementing monetary policy effectively. This is a laudable task by the money market.
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Helps In The Formation Of Capital
Money market helps in the formation of capital. There is no business except for the fact that, there is capital for the business.
So to start a business, capital is of a necessity. Therefore, in the case of capital formation, what the money market does is to provides funds for investment.
The money market will make this resources available by sourcing for funds and generating revenue for saving and for investment. Therefore, it is the function of the money market to make available savings and investment in the economy.
Provision Of Non Inflationary Source Of Finance
One of the functions of the money market is to make provision for non inflationary source of funds, and this non inflationary source of funds is provided to the government.
However, it can be possible for the money market to issue treasury bill for the purpose of raising short loans. Nonetheless, this never makes the prices increase.
Accommodates Banks Dealings
Money market accommodates banks dealings. Among several other functions of money market, there is arrangement in money market, which allows for the accommodation of financial houses and banks dealings, this is in short term monetary transactions, which has to do with the demand for funds and the supply of funds in the money market.
When I began, I did mentioned that, there are about two types of financial market, which are, capital market and money market.
My interest in this article, was that of the money market. Money market is actually the short end in the financial system, which normally make provision for short term savings and investment, with maturity date, say, a year or less than a year.
Money market represents intermediary for financial assets, and this financial assets are short term financial assets, and in Nigerian money market, these assets are close substitute for funds.
As I end, the money market was established for the purpose of mobilization of domestic savings so as to be used in investment that is considered productive. Another objective was to make provision for funds to enable government implements programs.
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