Role of money market in economic

Contact Author Introduction Money is one of the fundamental inventions of mankind.

The U.S. money market

What are the functions and importance of Money Market? A well-developed money market is essential for a modern economy. Though, historically, money market has developed as a result of industrial and commercial progress, it also has important role to play in the process of industrialization and economic development of a country.

Importance of a developed money market and its various functions are discussed below: Money Market plays crucial role in financing both internal as well as international trade. Commercial finance is made available to the traders through bills of exchange, which are discounted by the bill market.

The acceptance houses and discount markets help in financing foreign trade. Money market contributes to the growth of industries in two ways: However, capital market depends upon the nature of and the conditions in the money market.

The short-term interest rates of the money market influence the long-term interest rates of the capital market.

Thus, money market indirectly helps the industries through its link with and influence on long-term capital market. Money market enables the commercial banks to use their excess reserves in profitable investment.

The main objective of the commercial banks is to earn income from its reserves as well as maintain liquidity to meet the uncertain cash demand of the depositors. In the money market, the excess reserves of the commercial banks are invested in near-money assets e.

Thus, the commercial banks earn profits without losing liquidity. Self-Sufficiency of Commercial Bank: Developed money market helps the commercial banks to become self-sufficient.

In the situation of emergency, when the commercial banks have scarcity of funds, they need not approach the central bank and borrow at a higher interest rate.

The role of money in a market economy

On the other hand, they can meet their requirements by recalling their old short-run loans from the money market. Help to Central Bank: Though the central bank can function and influence the banking system in the absence of a money market, the existence of a developed money market smoothens the functioning and increases the efficiency of the central bank.

Money market helps the central bank in two ways:Role of Money Market Instruments in the Financial Crisis Since money market instruments are generally so safe, it came as a surprise to most that they were at the heart of the financial crisis.

In fact, the Fed had to create many new and innovative programs to keep the money market running. The New York Fed has been working with tri-party repo market participants to make changes to improve the resiliency of the market to financial stress. Outreach & Education.

Outreach & Education; Community Development The Role of Money Markets.

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Role of Capital Market in an Economy Financial market deals about the raising of finance by various institutions through the issue of various securities. Every business concern requires two types of finance. The New York Fed offers the Central Banking Seminar and several specialized courses for central bankers and financial supervisors.

The New York Fed has been working with tri-party repo market participants to make changes to improve the resiliency of the market to financial stress.

A well-developed money market is essential for a modern economy. Though, historically, money market has developed as a result of industrial and commercial progress, it also has important role to play in the process of industrialization and economic development of a country.

Importance of a developed. Please explain how financial markets may affect economic performance.

smoothly operating financial markets play an important role in contributing to the health and efficiency of an economy. There is a strong positive relationship between financial market development and economic growth.

Money Market Mutual Funds: 1, 1, .