Money Market

What is the Money Market?

The money market is the market in which wholesale funding is bought and sold. The assets traded in the money market are extremely liquid and have very short maturities. Typically, the money market is used for borrowing and lending money in the short term and plays an essential part in the funding of financial institutions.

The most basic principal of lending is borrow cheap, loan high. Due to the fact that money markets sell short maturity assets, these typically have low interest rates. Firms can continuously borrow in the wholesale markets on a short-term basis, then use that money for longer-term, higher yield investments.

The risk (and this was one of the causes of the 2008 financial crisis) is that the money markets 'dry up' and firms can no longer borrow money to finance their investments.

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