The money market is basically one of the component of the financial markets. The key feature of the money market is that at its fundamental level it involves trading of financial instruments which are
1) Debt based
2) Short term in nature (maturing in a year or less) and
3) Traded OTC (Over the counter) i.e. not on an exchange.
A typical money market transaction involves an entity (either a large corporation, a bank or the government) borrowing money and in exchange giving an IOU to the lender. The IOU among other things specifies when the amount which was borrowed needs to be repaid (usually ranging from overnight repayment to a year) and at what interest. More »