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Tuesday, August 28, 2007

MONEY MARKET

The money market is the global financial market for short-term borrowing and lending. It provides short-term liquid funding for the global financial system. The money market is a sector of the capital market where short-term obligations such as Treasury bills, commercial paper and bankers' acceptances are bought and sold.

A money market consists of financial institutions and dealers in money or credit who wish to either borrow or lend. Participants borrow and lend for short periods of time, typically up to thirteen months. Money market trades in short term financial instrument commonly called "paper". This contrasts with the capital market for longer-term funding, which is supplied by bonds and equity.

Borrowers

The core money market consists of banks borrowing and lending to each other, using commercial paper, Repurchase agreements and similar instruments. These instruments are often benchmarked to LIBOR.

Finance companies, such as GMAC typically fund themselves by issuing large amounts of asset backed commercial paper which is secured by the pledge of eligible assets into an asset backed commercial paper conduit. Examples of eligible assets include auto loans, credit card receivables, residential/commercial mortgage loans, mortgage backed securities and similar financial assets. Certain large corporations with strong credit ratings, notably General Electric, issue commercial paper on their own credit. Other large corporations arrange for banks to issue commercial paper on their behalf via commercial paper lines.

Federal, State and local governments all issue paper to meet funding needs. States & local governments issue municipal paper, while the US Treasury issues Treasury bills to fund the US Public Debt.

  • Trading companies often purchase bankers acceptances to be tendered for payment to overseas suppliers.
  • Retail and Institutional Money Market Funds
  • Banks
  • Central Banks
  • Cash management programs
  • Arbitrage Asset backed commercial paper conduits, which seek to buy higher yielding paper, while themselves selling cheaper paper.

Trading takes place between banks in the "money centers" (London, New York, Tokyo and Greenwich)


from
http://en.wikipedia.org/wiki/Money_market