Money Market

AAA

DEFINITION of 'Money Market'

A segment of the financial market in which financial instruments with high liquidity and very short maturities are traded. The money market is used by participants as a means for borrowing and lending in the short term, from several days to just under a year. Money market securities consist of negotiable certificates of deposit (CDs), bankers acceptances, U.S. Treasury bills, commercial paper, municipal notes, federal funds and repurchase agreements (repos).

INVESTOPEDIA EXPLAINS 'Money Market'

The money market is used by a wide array of participants, from a company raising money by selling commercial paper into the market to an investor purchasing CDs as a safe place to park money in the short term. The money market is typically seen as a safe place to put money due the highly liquid nature of the securities and short maturities, but there are risks in the market that any investor needs to be aware of including the risk of default on securities such as commercial paper.

The money market is different from the capital market. The differences can be read in the article Financial Markets: Capital Vs. Money Market and Getting to Know the Money Market.

VIDEO

Loading the player...
RELATED TERMS
  1. Money Market Account

    An interest-bearing account that typically pays a higher interest ...
  2. Money Market Fund

    An investment fund that holds the objective to earn interest ...
  3. Money Market Yield

    The interest rate earned by investing in securities with high ...
  4. Commercial Paper

    An unsecured, short-term debt instrument issued by a corporation, ...
  5. Banker's Acceptance - BA

    A short-term debt instrument issued by a firm that is guaranteed ...
  6. Certificate Of Deposit - CD

    A savings certificate entitling the bearer to receive interest. ...
RELATED FAQS
  1. What does a sample plan using the 4% retirement rule look like?

    The 4% retirement rule is often used by financial planners to set the amount that a retiree can withdraw annually from an ... Read Full Answer >>
  2. What economic indicators are important to monitor when investing in the insurance ...

    Inflation and interest rates are the best economic indicators to monitor when investing in the insurance sector. Unlike with ... Read Full Answer >>
  3. Are money market accounts for short-term investments a good idea?

    Money market accounts are a good idea for short-term investments. Some of the desired traits in short-term investments are ... Read Full Answer >>
  4. What are some examples of securities that can be found in a money market fund?

    Some examples of securities found in money market funds are Treasury bills (T-bills), commercial paper, bankers acceptances, ... Read Full Answer >>
  5. For what types of accounts are demand deposits available?

    There are essentially three types of accounts available as demand deposits: checking accounts, savings accounts and money ... Read Full Answer >>
  6. To what extent are utility stocks affected by changes in interest rates?

    Utility stocks are definitely subject to interest rate risk and can be significantly impacted by changes in interest rates. Competition ... Read Full Answer >>
Related Articles
  1. Bonds & Fixed Income

    Introduction To Commercial Paper

    Commercial paper is a short-term instrument that can be a viable alternative for retail fixed-income investors looking for a better rate of return on their money.
  2. Investing Basics

    Banker's Acceptance 101

    A banker's acceptance, a common way of financing international trade activity, provides a relatively safe, short-term vehicle for investors. An acceptance is a negotiable time draft that a bank ...
  3. Investing Basics

    Financial Markets: Capital Vs. Money Markets

    Two commonly used components of the financial market are money markets and capital markets. Find out the similarities and differences between them.
  4. Personal Finance

    Get A Short-Term Advantage In The Money Market

    This investment vehicle is often the perfect stop-gap measure for growing your money.
  5. Options & Futures

    Getting To Know The Money Market

    If you need liquidity and safety on a sum of money, don't forgo potential interest by keeping the funds as cash.
  6. Options & Futures

    Do Money-Market Funds Pay?

    This investment provides security, but its returns may not be adequate for long-term investors.
  7. Forex Education

    The International Money Market

    Banks, corporations, traders and speculators all use the IMM to borrow, lend, trade, profit, finance, speculate and hedge risks.
  8. Bonds & Fixed Income

    The Money Market: A Look Back

    Learn how past inflationary periods can predict future real rates of return for cash investments.
  9. Retirement

    The Money Market

    If your investments in the stock market are keeping you from sleeping at night, it's time to learn about the safer alternatives in the money market.
  10. Trading Systems & Software

    The Fast-Paced World of Libor & Fixed Income Arbitrage

    LIBOR is an essential part of implementing the swap spread arbitrage strategy for fixed income arbitrage. Here is a step-by-step explanation of how it works.

You May Also Like

Hot Definitions
  1. ZEW Economic Sentiment

    A monthly economic survey. The ZEW Economic Sentiment is an almalgamation of the sentiments of approximately 350 economists ...
  2. Radner Equilibrium

    A theory suggesting that if economic decision makers have unlimited computational capacity for choice among strategies, then ...
  3. Inbound Cash Flow

    Any currency that a company or individual receives through conducting a transaction with another party. Inbound cash flow ...
  4. Social Security

    A United States federal program of social insurance and benefits developed in 1935. The Social Security program's benefits ...
  5. American Dream

    The belief that anyone, regardless of where they were born or what class they were born into, can attain their own version ...
  6. Multicurrency Note Facility

    A credit facility that finances short- to medium-term Euro notes. Multicurrency note facilities are denominated in many currencies. ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!