What is the money market?? Features and role of money market How? The following article by HVA will help readers better understand the currency market.
What is the money market?
What is the money market?? Money Market is where short-term capital transactions take place between the supply and demand sides of capital. Short-term capital here usually has a maturity of less than 1 year and has outstanding characteristics such as: low risk and high liquidity.
Popular activities on money market includes bank loans, securities trading and deposit certificate trading. This is a trading environment where both individuals and organizations can participate to carry out capital buying and selling activities.
What is the money market?
What is the structure of the money market?
Structure Vietnam currency market Includes 5 sub-markets:
- Deposit market.
- Credit market.
- Open market.
- Interbank market.
- Bond market treasury.
Additionally, the money market can be classified in two ways:
Based on organization:
- Primary money market (where bonds are issued to raise capital for the issuer).
- Secondary money market (where bonds issued in the primary market are bought and sold).
Based on the operating tool:
- Short-term debt market (trading between institutions under close supervision of the central bank).
- The market for short-term bonds and other valuable papers (such as bills, promissory notes, indentures, etc.).
What are the characteristics of the money market?
Let's learn about the characteristics of HVA What is the money market? The currency market is highly popular, operates continuously 24/7, and offers many attractive investment opportunities for individuals and organizations. Some outstanding and superior features of money market includes:
- Decentralized Market: There are no specific rules or regulations and operations are not supervised by any governing body.
- Operations through the banking system: Transactions are mainly carried out through banks, which play the most important role in providing and using short-term capital.
- Globalization: Transactions in the currency market take place mainly online, creating global connectivity.
- Short term: Capital turnover activities usually have a term of less than 1 year.
- Diversified operations: Including maturity rights, term options and swap operations.
- High liquidity: Trading instruments in the market offer attractive returns to investors.
- Intermediary role: The money market is a bridge between commercial banks (lenders) and borrowers.
What is the role of the money market?
The money market has its own unique characteristics and plays an important role in the economy. Specifically, role of money market is shown through the following points:
- Meeting short-term borrowing needs: The money market will help businesses and investors raise capital quickly to meet short-term financial needs.
- Providing Trading Opportunities: With high liquidity, the currency market offers many financial trading and development opportunities for investors.
- Supporting the economic development of the country: The money market will play an important role in mobilizing capital and equipping investment knowledge into securities, currencies, contributing to the development of the national economy.
- Facilitating international payments: The money market facilitates international payment transactions, promotes cooperation between countries and facilitates the easy circulation of goods.
Subjects participating in the currency market
The currency market operates 24/7 and is an ideal place to invest and make profits. So What markets does the money market include?
- Government: Is an important entity, playing the role of issuer of treasury bills and general market manager.
- State Bank: Has the responsibility of regulating market activities, ensuring stability, reducing inflation and promoting growth.
- Commercial banks and financial institutions: Mobilize capital from the population and convert it into lending capital to meet the needs of businesses.
- Enterprises/economic organizations: Need to use capital to invest and develop business.
- Individuals, organizations, and groups: Participate in the market to buy and sell currencies, valuable papers, or borrow capital to invest in business, provided that they meet legal requirements and have a stable income.
Money Market Tools You Should Know
Understand the money market instruments will help investors effectively utilize investment opportunities. Currently, the currency market is circulating 5 main tools, including:
- Treasury bills: These are short-term debt securities issued by the government to regulate and circulate currency. Treasury bills help balance the budget, revenue and expenditure, and offset temporary deficits, thereby limiting inflation. Treasury bills have a maturity of less than 1 year with interest and principal paid in one lump sum upon maturity.
- Interbank loans: Commercial banks and finance companies need to maintain reserves to meet customers' withdrawal demands. Banks with excess reserves can lend to banks with shortages, helping to balance the money market.
- Banker’s Acceptance: This is a security instrument for payment of the importer’s outstanding balances to the manufacturer. The importer can sell this paper to collect payment before the maturity date. This paper has high liquidity but low interest rate.
- Commercial bills: Are short-term debt instruments issued by manufacturing units, replacing promissory notes, stating the debt amount, time and interest rate. When the maturity date comes, the issuing unit must pay the full principal and interest to the recipient.
- Short-term certificates: Are short-term instruments with terms of 3, 6, 9 months or up to 12 months. These certificates include savings certificates, finance company bills and bank notes. Issued to raise capital and lend short-term at fixed interest rates and repay both principal and interest upon maturity.
The close relationship between money market and capital market
Many people often confuse the money market and the capital market, so HVA would like to clarify the difference between these two markets to help you distinguish more easily:
The money market is where financial instruments with a maturity of less than one year are traded, while the capital market is where medium and long-term financial instruments with a maturity of more than one year are traded.
Despite the difference in time, the activities of the money market and the capital market are closely linked and take place synchronously, affecting each other. However, in reality, it is not always easy to clearly distinguish between these two markets. The money market is a familiar and important trading channel for both individual and institutional investors. Therefore, understanding the news about What is the money market? will help you choose the right trading tool. Hopefully the above sharing of HVA will provide you with useful information to optimize profits and minimize risks during trading.
