Management of Financial Institutions Assignment AMarks 10 Answer all questions.

1.Define money market. What are its broad objectives and functions? How is money
marketdifferent from capital markets?
A.1 The money market is a component of the financial markets for assets involved in
shortterm!orrowing and lending with original maturities of one year or shorter time frames.
Trading in themoney markets involvesTreasury !ills"commercial paper "!ankers# acceptances"
certificates ofdeposit" federal funds" and shortlived mortgage!acked and asset!acked
securities.
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It providesliquidity funding for theglo!al financial system.
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As per &'I definitions (A market for short terms financial assets that are close su!stitute for
money"facilitates the e)change of money in primary and secondary market*.The money market
is a mechanism that deals with the lending and !orrowing of short term funds+less than one
year,. A segment of the financial market in which financial instruments with highliquidity and very
short maturities are traded.It doesn-t actually deal in cash or money !ut deals with su!stitute of
cash like trade !ills" promissorynotes govt papers which can convert into cash without any loss
at low transaction cost. It includesall individual" institution and intermediaries./!ective of Money
Market

To provide a parking place to employ short term surplus funds.

To provide room for overcoming short term deficits.

To ena!le the central !ank to influence and regulate liquidity in the economy through
itsintervention in this market.

To provide a reasona!le access to users of shortterm funds to meet their requirement

quickly"adequately at reasona!le cost.