Usefulness of a Developed Money Market

The money market is an important institution in a modern economy and it has influenced profoundly industrial and commercial developments:

(a) In Financing Industry and Commerce: In the first place, the money market is of very great help in financing industry and commerce. Industries are helped in their working capital requirements through the system of finance bills, commercial paper, and so on. It has played a very important part in the financing of trade and commerce. Both internal as well as international trade is normally financed through the system of bills of exchange which are discounted by the bill market.

(b) Investment of Short-term Funds: The money market plays a very important role in providing necessary assets for the investment of short-term funds of commercial banks. Commercial banks find such assets in the call money market as well as in the bill market. Thus, the money market offers the commercial banks a very good means of temporarily employing their funds in liquid or near-money investments.

(c) Help to the Central Bank: The money market is of great help to the central bank of the country. For one thing, the money market and short-term rates of interest which prevail there serve as a good barometer of monetary and banking conditions in the country and thus provide a valuable guide to the determination of central banking policy. For another, the developed money market being a highly integrated structure enables the central bank to deal with the most sensitive of the sub-markets so that the influence of the operation of the central bank may spread to other sections also.

(d) Help to the Government: Lastly, the money market helps the government. The money market supplies the government with necessary short-term funds through the treasury bills.

Thus, a developed money market is of great assistance to industry and commerce, to the commercial banking system, to the central bank of the country and to the government.