What does a money market typically trade in?

What does a money market typically trade in?

• A. Long-term investments between corporations.
• B. Short-term loans between banks and financial institutions.
• C. Stocks and bonds of various companies.
• D. Real estate properties and mortgages.

Answer: (B)

A money market primarily trades in short-term loans, which are typically represented by instruments like Treasury bills, commercial paper, and certificates of deposit. These instruments usually have maturities of one year or less, making them suitable for investors looking for liquidity and low risk. The transactions in the money market allow banks, corporations, and other financial institutions to manage their short-term funding needs efficiently. This focus on short-term borrowing and lending distinguishes the money market from other types of markets, such as capital markets, where longer-term investments in stocks and bonds are made. Furthermore, the money market is critical for maintaining liquidity in the financial system, as it helps to ensure that institutions have access to the funds they need without having to resort to more drastic measures during a cash crunch.

A money market primarily trades in short-term loans, which are typically represented by instruments like Treasury bills, commercial paper, and certificates of deposit. These instruments usually have maturities of one year or less, making them suitable for investors looking for liquidity and low risk. The transactions in the money market allow banks, corporations, and other financial institutions to manage their short-term funding needs efficiently.

This focus on short-term borrowing and lending distinguishes the money market from other types of markets, such as capital markets, where longer-term investments in stocks and bonds are made. Furthermore, the money market is critical for maintaining liquidity in the financial system, as it helps to ensure that institutions have access to the funds they need without having to resort to more drastic measures during a cash crunch.