Money markets are those where short-term assets are traded. These assets are characterized by their high liquidity and low risk. Generally, most money markets are unregulated and informal markets, where most of their transactions are carried out by means of the telephone, internet, fax, etc.
The objective of the money market is to offer banks, public institutions, savings banks, etc. (They act as economic agents), titles and securities with great liquidity in exchange for their wealth.
Money markets are classified into:
Short-term credit markets, here loans, credits, discounts are negotiated.
Securities markets (primary and secondary). In primary markets, there is no fixed regulation, people who sell their securities do so in order to obtain resources in return.
Secondary markets are integrated by the stock exchange and market public debt.
There are many reasons to invest in these markets, some of them are:
Safe and highly liquid investments; for its flexibility in the interests it offers, as well as its high volume of asset contracting. They are recognized as wholesale markets. Negotiations can be carried out directly between the participants or through specialized intermediaries.
The issuance techniques used in the money markets are innovating over time, currently the ones that stand out the most are:
The discount or interest charges "on the fly", this means that the buyer of the asset, cancels an amount less than the nominal amount at the time of purchase, receiving the nominal amount, once it is paid in full. The difference between the amount paid, and the nominal amount, is the discount that the buyer receives, logically, he does not receive periodic interest, since he charges them in full in advance. An example of this are the letters of the Treasury and the commercial paper business.
Zero coupon, in this case the securities are purchased at their nominal value, and are amortized with different premiums, depending on the repayment term. Example, bank cash and treasury bonds.
At a variable rate, in this case the securities issued have an interest rate that is not fixed but develops depending on the reference interest rate.
Finally, the development that money markets have had is due to the fact that over time they have contributed to:
The achievement of the objectives of the monetary policy, the formation of a system adapted to interest rates, the efficiency in the decisions made by the economic agents, the legal financing of the public deficit.
