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This article is from the Investing Articles:
Bonds series.
The Money Market
Generally, corporations raise money by issuing long term debt and
equity instruments. The money market is the a market which is used for
buying and selling short term loanable funds in the form of
securities and loans. Money is not what is traded in the money
market. Short term loans are traded which can be converted into cash
rather quickly. The buyer of a money market instrument is the
lender. The seller of the money market instrument is the
borrower. Money market instruments have a maturity of one year or
less. Most have a maturity of six months or less. The majority of
money market instruments are issued at a discount. This means that the
lender of the money does not receive interest payments. Rather, you
might lend $96,000 and receive $100,000 at maturity. For the most
part, $100,000 is the minimum amount which is traded in the money
market. Money market instruments are regarded as quite safe. Of
course, there are some instruments which are considered more safe than
others. T-Bills are considered safer than commercial
paper. Nevertheless, they are all considered low risk.
The money market trades both corporate and government debt
securities. T-Bills are the majority of what's traded in the money
market. However, Treasury Notes are also traded. Treasury Notes have
maturities from one year to ten years. T-Bonds are also
traded. However, the only T-Bonds traded have one year or less to
maturity. One of the greatest advantages to the Money Market is the
great liquidity. It is such a huge market that the spreads are kept
relatively low. Also, interest earned from the Money Market is free of
state tax. One last feature of the Money Market is the absence of
business risk.
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bonds, convertible bonds, federal funds, glossary, foreign currency, municipal, government, savings, tax exempt, yeilds, US Treasure bonds, financial information, investing, investment tools, reference
