Significance of Money Market for an Economy

Significance of Money Market for an Economy

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The expression "Money Market" essentially alludes to a fragment of the monetary Market where maturities that are short-term and high liquidity monetary instruments are exchanged. It is a part of the monetary market where protections of one-year or less developments, like depository bills and business papers, can be traded. The following elements bring out the significance of the money market:

• Industry and trade expansion - Since it rapidly and sufficiently accommodates transient assets, it is a significant wellspring of supporting exchange and industry. The Money Market facilitates national and international trade and industry development by financing trade and industry's short-term working capital requirements through discounting operations and commercial papers.

• Improvement of the Capital Market - The drawn-out Revenue and asset activation in the capital Market are affected by the momentary rates of Revenue and the circumstances that win in the Currency Market.

• Smooth Activity of Business Banks - Commercial banks are able to purchase easily realizable assets by temporarily using their excess funds through the Money Market. Banks can quickly get their money back when they need it by using the Money Market. Commercial banks are also able to meet statutory requirements for the cash reserve ratio (CRR) and the statutory liquidity ratio (SLR) thanks to the Money Market mechanism

• The Central Bank's Effective Control - The Central Bank is able to function more effectively with the help of a developed Money Market. It makes it easier for a central bank to effectively implement its monetary policy. The conditions in a Money Market are a reliable indicator of an economy's monetary health.

• Designing an appropriate monetary policy - As a result, the government can use it as a guide when adjusting its monetary policy to market conditions.

• The Government's Sources of financing that is non-Inflationary - In the non-appearance of an operational money market, the government would have no choice but to print and issue more money or borrow money from the central bank to raise short-term funds through the flotation of Treasury bills; Both of these things would lead to an increase in costs and an inflationary pattern in the economy.