Discuss how the money market meets its liquidity requirement

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Reference no: EM133264612

PURPOSE OF MONEY MARKET

In an unregulated world, the money markets should not be needed because of the banking industry. The latter exists primarily to provide short-term loans and to accept short-term deposits. They have an efficient advantage in gathering information, which should eliminate the need for the money markets. Also, because of their continuing relationships with customers, banks offer loans more cheaply than diversified markets. Furthermore, deposits placed in banks and thrifts are more liquid and safe compare with the short-term securities offered for sale in the money markets. Given the advantages that banks have, why do money markets exist at all? Discuss your answer in no more than five (5) sentences.

Discussion:

PARTICIPANTS IN THE MONEY MARKET

A money market is an ideal place for a firm or financial institution to "warehouse" surplus funds until they are needed. Given below are those firms or financial institution otherwise known as participants. Now, discuss how the money market meets its liquidity requirements and cite an example demonstrating the concept.

1. Investment Companies

2.Commercial banks

3. Bureau of Treasury

Reference no: EM133264612

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