Investing in Money Market
Definition of Investing in Cash (Money) Market
A segment of the financial market in which financial instruments with high liquidity and very short maturities are traded. Money market securities consist of negotiable certificates of deposit (CDs), bankers acceptances, U.S. Treasury bills, commercial paper, municipal notes, federal funds and repurchase agreements (repos).
The money market is used by participants as a means for borrowing and lending in the short term, from several days to just under a year.
The core of the money market consists of banks borrowing and lending to each other, using commercial paper, repurchase agreements and similar instruments. These instruments are often benchmarked (i.e. priced over and above) to the London Interbank Offered Rate (LIBOR).
Where Money Market Securities are Traded
Most money market securities trade in very high denominations, limiting access for the individual investor. The money market is a dealer market, meaning that firms buy and sell securities in their own accounts, at their own risk. Deals are transacted over the phone or through electronic systems.
The easiest way to gain access to the money market is with a money market mutual funds, or through a money market bank account.
Benefits of Investing in Money Markets
- high liquidity
- low risk
Negatives of Investing in Money Markets
- limited return
