The money market is where financial instruments with high liquidity and very short maturities are traded.

It is used by participants as a means for borrowing and lending in the short term, with maturities that usually range from overnight to just under a year. Among the most common money market instruments are eurodollar deposits, negotiable certificates of deposit CDs , bankers acceptances , U. Treasury bills , commercial paper, municipal notes , federal funds and repurchase agreements repos.

Money market funds offer individuals the opportunity to invest smaller amounts in these assets. Institutions that participate in the money market include banks that lend to one another and to large companies in the eurocurrency and time deposit markets; companies that raise money by selling commercial paper into the market, which can be bought by other companies or funds; and investors who purchase bank CDs as a safe place to park money in the short term.

Only primary dealers can buy them directly from the government; dealers trade them between themselves and sell retail amounts to individual investors. State, county and municipal governments also issue short term notes.

Commercial paper is a popular borrowing mechanism because it is exempt from SEC registration requirements. It's attractive to corporate investors because rates are higher than for bank time deposits or Treasury bills, and a range of maturities is available, from overnight to days.

However, the risk of default is significantly higher for commercial paper than for bank or government instruments. Mutual funds offer baskets of these instruments, which are generally considered to be safe, to individual investors.

That triggered market panic and a mass exodus from the funds, which ultimately led to restrictions on them holding higher-yielding investments in order to raise returns.

The money market is different from the capital market, which is the sale and purchase of long-term debt and equity instruments. A discussion of the differences between the two markets is available in the articles Financial Markets: Money Market and Getting to Know the Money Market.

Money Market Funds and Certificates of Deposit - dummies

Dictionary Term Of The Day. A measure of what it costs an investment company to operate a mutual fund.

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