Money Market

The term money market denotes the financial market which links investors looking for short-term returns to enterprises looking for short-term access to capital, as opposed to the term capital market which denotes the market for long-term investment and financing. The money market encompasses the markets for short-term, negotiable loans by investors to enterprises.

Securities which make up the money market are highly liquid and pay out interest or dividends soon after being issued. Typically, investment with a term of one year or less fall under the money market classification. Securities which make up the money market may include short-term notes, medium-term notes, certificates of deposit, treasury bonds, municipal bonds, mortgage-backed securities such as real estate investment trusts (REITs), among others.

While there are secondary markets for money market securities, their short investment terms make the secondary market less significant than the primary market, with transactions between issuers and investors typically outnumbering transactions between investors. Investors who buy, sell or trade short-term securities are participating in the money market, even if they repeatedly invest in the same short-term securities over long periods of time.

See also: Capital market

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