THEORETICAL
LITERATURE: AND OVERVIEW
Money market is a market for short –
term funds, as the name market implies; it is a market in which money is bought
and sold. It facilitate the raising of funds by business enterprises for the
purchase of inventories, by banks to finance temporary reserve loss and by
government to bridge the gap between its receipts/revenue and expenditure
(Noko, 2011).
Infact, money market developed
because parties had surplus funds while others needed urgent cash (funds).
Money market is a market that deals with short – term securities, having its
maturity between one year or less. The debt instrument traded in this market
includes: bankers acceptance, commercial paper, repos, negotiable certificate
of deposit and government Treasury bill. Money market instrument are generally
very safe investment, which return a relatively low interest rate that is
mostly appropriate for temporary cash storage or short time horizons, with high
liquidity.
Unlike the market for textiles for
example, there is no place that one can call a money market. Although
activities in the market can be concentrated in a particular street. For
example, Wall Street in New York, Loan band Street in London and Broad Street
in Lagos. Transactions in the market are impersonal taking place mostly by
telephone (Ajayi & Oyo 2005).
In operating money
market all you need is a desk, a telephone with multiple lines and license to
do business, often referred as money market Desk (Agwu, 2004).
Thus, money market is
described as a wholesale marker for low risk highly liquid, short term loans.
Money market is not just one market, but a series of closely connected markets.
Funds are easily and quickly obtainable in the primary money market at low
interest rates. In the words of Anyawu, “money market is a market for
collection of financial institutions set up for the granting of short – term
loans and dealing in short – term securities, gold and foreign exchange”.
Infact, it is argued that one of the
principal roles of the money market in any economy is that it serves as
instrument by which the government (monetary authorities) uses to control the
economic activities. Thereby, mobilizing funds from surplus sectors of the
economy to the deficit sector of the economy, vis – a – vis its numerous
instruments in the guest to accelerate and promote economic growth and
development in large. Money markets
serve as one of the heading instrument employed by the monetary authority (CBN)
to control the activities of the economy (Noko, 2011).
Instrument traded in the money
market have common features which includes: it is debt obligation, maturity
last between one day and full year. Most of the instruments have a high degree
of safety of principal for a number of reasons;
The debt instruments
are issued by borrowers with generally high credit standing.
Money market
instruments have a high degree of liquidity.
These instruments are
usually in high amount units of millions or more.
The short duration of
these instrument mean they negligible interest rate risk.
Most of the instruments have active secondary markets
which facilitate their sales at maturity (Agwu, 2004). However, for a
comprehensive analysis and understanding of the money market, its operation,
function, role in economic development of any nation. A review of the broad
component of money as a concept; its role in the economy; theories and impact
on the economy will be assessed in this work.