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Concepts and meanings of money market
Meaning of money marketMoney or monetary market is the set of financial markets, normally to the wholesale, independent but related, that are exchanged financial assets that have as common denominator a short repayment term, which usually does not exceed eighteen months, low risk and high liquidity.
Financial marketsFinancial markets are a set, they form the masterworks fund market, but differentiates according to the characteristics of the assets negotiated, between capital market and monetary.
According to the OECD, capital market includes the operations of placement and long-term funding and the institutions that mainly carry out these transactions. Within the capital market we can speak of two markets: the stock market and the market of long-term credit. At the same time securities markets are divided between equity markets and fixed income markets.
The distinctive features of the monetary market are short-term, more reduced risk and liquidity of the assets that are traded in the same, its key features are as follows:
1 Are markets to the by greater since, its participants tend to be large financial institutions or industrial companies, trading large amounts of financial resources from the decisions of specialized professionals.
2. In these markets are traded assets with little risk, additional warranties that provide both the solvency of the CAs (public Treasury or financial or industrial institutions of large size) (mortgage securities, for example, or company promissory note guaranteed by a bank.)
3. Are assets negotiated with much liquidity, derived much of their short-term maturity, that usually does not exceed 18 months, of their negotiation possibilities in secondary markets. In addition, operations are performed frequently with them with Covenant of retrogression in the very short term.
4. the negotiation is performed directly between the participants or through specialized intermediaries.
5 Have shown great flexibility and financial innovation, which has led to the emergence of new new, financial intermediaries financial assets and issuing techniques more innovative, among which are the following:
• Discount or interest to flip. This formula implies that the buyer of the asset pays lower than the nominal amount at the time of the acquisition, receiving nominal in time to cancel it. The difference between the amount paid and the nominal value is discount or profitability that gets the buyer which, understandably, does not receive periodic interest, since cobra them in advance in its entirety. Money market titles that are often broadcast in this way are the company promissory notes and Treasury bills.
• Zero coupon. In this case the payment of interest is performed to the maturity of the debt, therefore the titles are purchased at their nominal value (or below) and she is amortized with different premiums according to the term of repayment. Money market titles that are often broadcast in this way are the Bank cash and Treasury bonds.
• Variable rate. In this case securities whose interest rate is not fixed but it evolves according to some kind of reference, such as, for example, the interbank rate interest, more are issued a fixed differential. This formula is often used in the issuance of certain bonds and notes and has been taken from the credits at variable interest rate.
The fundamental reasons for great development occurred in the Spanish currency markets in recent years, can be grouped into two categories.
The fact that both the economic authorities and other economic agents have tried to support the development of money markets in view of the favourable consequences arising from them for the functioning of the economy. In this sense, it tends to highlight the contribution of currency markets to achieve the following purposes:
• The achievement of the objectives of monetary policy.
• The formation of an appropriate interest rate structure.
• The efficiency of the financial decisions of economic agents.
• The Orthodox financing of the government deficit.
Secondly, the set of phenomena of primarily economic or institutional nature that has also helped its development, regardless of the net effects of these phenomena on economic activity have been or not pernicious. They stand out among them high rates of inflation, low growth domestic product, accelerated growth of public spending and deficits, the technological revolution, etc.
Definition of money marketAlso called money market, money market is a part or submercado of the financial market, in which credit operations are performed or negotiated financial assets short term. It comprises the interbank market, the certificates of deposit, bonds and IOUs from the Treasury, the market of bills of Exchange and, in general, all financial asset short-term market. When speaking of monetary market commonly referred both the primary market and the secondary market of the different assets that are traded. The main function of the money market is the provide to the public and to economic operators in general the possibility to keep a part of their wealth in the form of securities or securities with a high degree of liquidity and an acceptable profitability. The economic agents involved in this market offering and demanding short-term funds are many. But they are commercial banks and in Spain also the savings, especially since 1978, who along with public administrations have great weight in this market. Non-bank financial institutions, such as pension funds and life insurance companies, although they usually invest their availabilities in long-term securities, attend frequently money market to exit their temporarily idle cash surplus.
It is formed by a series of markets essentially interrelated by the level of interest rates, which have the following characteristics:
-Its participants are banks with many resources and specialized.
-Assets that are traded are low risk due to the solvency of institutions and even with additional guarantees.
-They have great liquidity, given their short-term maturity and the existence of secondary markets.
-Operations may be made directly or through specialized intermediaries.
-In addition, they are very flexible and have originated a large number of intermediaries, assets and new techniques of emission.
The main currency markets are: the interbank market, the foreign exchange market, the AIAF fixed income market and the mortgage market.
Concept of monetary marketMonetary or markets, money markets are markets in which are traded assets short term (maturity exceeding one year, while assets with longer terms can be negotiated). These assets have the characteristic of high liquidity and low risk. Unlike the markets organized (such as stock exchanges) money markets are largely not regulated and informal where most transactions are carried out via telephone, fax, or online. In contrast, markets long term borrowing and lending are called capital markets.
Within the monetary market we can find the following classification:
• The credit markets in the short term: loans, discount, credits, etc.
• The securities markets: in which liquid assets are traded in the
or from the Public Sector (Treasury bills).
or issued by companies (company promissory notes)
or issued by the banking sector (interbank deposits, mortgage securities, etc.)
Although way more generally, can be said that the money market would be made up of two big blocks defined by the interbank market and the rest of the money markets.
Characteristics of the currency markets• Are markets at the wholesale in the sense that the participants are major financial institutions or industrial companies, trading large amounts of financial resources from the decisions of highly skilled professionals.
• Negotiate very low risk assets, derived from the solvency of the CAs (Treasury and large industrial or financial institutions) as, at times, of the additional guarantees provided (mortgage securities, or IOUs of companies backed by a Bank).
• Assets are highly liquid given by their short-term maturity and its great potential for trading on secondary markets.
• negotiation can be made directly with the participants or through specialized intermediaries.
• They present a great flexibility and financial innovation, which has resulted in the emergence of new financial intermediaries, new assets and new techniques of broadcast, among which stand out:
or discount or payment of interest "to pull". Consists in paying an amount lower than the nominal value to buy it, retyping the nominal to sell it. There is no periodic payments of interest. The most common cast in this modality are promissory notes of the company and the Treasury bills.
or zero coupon. Payment of interest is performed to the maturity of the debt. They acquire by their nominal value and interest are received at the end. The most common are the Bank cash and Treasury bonds.
or Variable rate. They are issued without fixed rate and he is set according to one reference as interbank plus some fixed amount.
What is money marketThe social institution that emerged from the relationship between sellers and buyers seeking to make exchanges or transactions is known comomercado.
Monetary, from latin monetarĭus, is that belonging or relating to the currency (the piece of gold or other metal that is used as a means of Exchange and, by extension, the ticket, paper or currency of legal tender).
Money market, therefore, is a branch within the financial market where financial assets (certificate of deposits, promissory notes, etc.) are traded in the short term. Its purpose is to offer operators the option to transform their wealth in securities or securities with a high degree of liquidity.
For example: "the multinational attend money market to get funding", "money market fulfils a very important role in the local economy".
Banks, savings banks and public administrations are the major actors that intervene in the money market. Other participants are non-bank financial institutions such as insurance companies.
Participation in the monetary market can occur through a direct relationship with the stations of assets or through intermediaries specialized (such as brokerage houses or banks). Among the reasons for investing in a money market include security, high liquidity and flexibility.
Assets traded in the money market, therefore, are characterized by their low risk and liquidity suelevada. It is possible to distinguish in this market to market credit and market of securities (primary and secondary).