Monday, 9 January 2017

[Functions of Money Market]

[Functions of Money Market]

Short Term Funds:
It provides short-term funds to the public and private institutions needing such financing for their working capital requirements. Discounting trade bills through commercial banks, discount houses, brokers and acceptance houses does it. Thus the money market helps the development of commerce, industry and trade within and outside the country.

Use of Surplus Funds:
It provides an opportunity to banks and other institutions to use their surplus funds profitably for a short period, which results in increase their revenues.

Borrowing from Central Bank:

The existence of a developed money market removes the necessity of borrowing by the commercial banks from the central bank. If the former find their reserves short then they can call in some of their loans from market.
Helper to Government:
The money market helps the government in borrowing short-term funds at low interest rates on the basis of treasury bills.

Control of Banking System:
A well-developed money market helps in the successful implementation of the monetary policies of the central bank. It is through the money market that the central bank is in a position to control the banking system and thereby influence commerce and industry.

Mobility of Funds:
By facilitating the transfer of funds from one sector to another the money market helps in financial mobility. Mobility in the flow of funds in essential for the development of commerce and industry.

Increase in Financial Resources:
One of the important functions of the money market is that it promotes liquidity and safety of financial assets. It thus encouraged savings and investment.

Equilibrium in Demand and Supply:
The money market brings equilibrium between the demand and supply of loan-side funds. In this way, it also helps in rational allocation of resources.

Near Money:
As the money market deals in near money assets and not money proper, it helps in economizing the use of cash. It thus provides a convenient and safe way of transferring funds from one place to another, thereby immensely helping commerce and industry.

Cooperation between Financial Institutions:
It develops cooperation between different financial institutions regarding borrowing and lending. In this way, they can help each other in financial stress.