Money Market Instruments

Money Market Instruments are the tools which help one to operate in the money market. They allow borrowers meet their short-term requirements as well as they provide liquidity to lenders. Investors looking to put their money for short-term and earn fixed income can invest in money market instruments.

Money markets provide those with funds—banks, money managers, and retail investors—a means for safe, liquid, short-term investments, and they offer borrowers—banks, broker-dealers, hedge funds, and nonfinancial corporations—access to low-cost funds. In IMF's words, the term money market is an umbrella that covers several market types, which vary according to the needs of the lenders and borrowers.

As the assets that are bought and sold are short term—with maturities ranging from a day to a year—and normally are easily convertible into cash. Money markets include markets for such instruments as bank accounts, including term certificates of deposit; interbank loans (loans between banks); money market mutual funds; commercial paper; Treasury bills; and securities lending and repurchase agreements (repos).

The types of Money Market instruments are:

• Treasury Bills

• Certificate of Deposits

• Commercial Papers

• Repurchase Agreement (Repos)

• Banker’s Acceptance

The notable characteristics of a money market instrument are:

• Liquidity

• Safety

• Discount Pricing

The best way to mitigate market risk with money market instrument is to hold them till maturity.