Money Market: Objectives, Functions, and Importance

What are the objectives of money market ? What are the functions of money market and write the importance of money market?

Contents

Objectives of Money Market

These are as under :

To provide a parking place to employ short-term surplus funds.
To provide a reasonable access to users of short-term funds.
To make available room for overcoming short-term deficits.
To enable the Central Bank to influence and regulate liquidity.

Functions of Money Market

Following are the functions of money market –

1. Provides Funds – Money market provides short-term funds to businessmen, private institutions and governments. Thus they help in internal and external trade.

2. Remittance Facilities – A developed money market provides easy and cheap remittance facilities to transfer funds from one market to another.

3. Promotes Liquidity and Safety to Financial Assets – It is also main function of money market. It provides liquidity and safety to financial assets.

4. Helps Government – Money market helps government by lending short-term funds at low rate of interest.

5. Equilibrium between Demand and Supply- Money market brings equilibrium between demand and supply of loanable funds. It is also helpful in proper distribution of resources.

6. Helpful in Monetary Policy – With the help of money market the central bank of the country controls banking system.

Importance of Money Market

Money market’s significance can be enumerated in the following headings:

1. Source of Financing: Money market is the source of financing for trade and industry. Discounting operations and commercial papers are the main source of financing. It facilitates development of industry and trade.

2. Development of Capital Market: The development of capital market depends upon the existence of a developed money market.

3. Supply of Short-term Funds: Money market supplies short-term funds adequately and quickly to trade and industry. It is helpful in rapid development of the economy. It ensures smooth functioning of the financial system.

4. Effective Central Bank Control: It is helpful in effective functioning of the central bank. It is helpful in effective implementation of the monetary policy. With the help of money market the central bank regulates the flow of money so as to ensure growth with stability.

5. Other Significance :