Why Money Market Is Important & How It Impacts The Overall Economy?

Posted: July 12, 2017 in Uncategorized

A well-developed money market is essential for a modern economy. Historically, money market has been developed as a result of industrial and commercial progress, it has played important role in the process of industrialization and economic development of every country. Core Significance & Importance of a well developed money market and its various attributes & functions can be understood by these core pointers through wide explanation –

Trade Financing – To get and have a global presence Money Market plays a vital role in developing and financing both the internal and external markets and viability of cash inflow continuously to have businesses run smoothly and productively . To have commercial trades run systematically bills of exchange are offered to traders which are discounted by bill market .

Industry Growth – Money Market helps in growth of industries by following ways –

1) Any business related to markets and its subsidiary functions are mostly helped by Money Market by providing short term and long term loans to have their capital inflow going smoothly by various financial instruments as bills of exchange , financial bills , commercial papers.

2) Industries require long-term loans, and to secure loans they look towards capital market, wherein the viability of capital market solely depends upon the crux,sentiments and nature of different conditions prevailing in the money market. Capital Market is prone and gets affected by short-term interest rates and long-term interest rates,and hence these variations in interest rates definitely affects industries in totality and their performances.

Enhancing Investments & Profits – Commercial Banks do have large scale liquid money as assets and Money Markets primary focus is to channelize and churn that money in to proper investments to earn profits though commercial banks always try to keep a sharp balance between risk and reward ratio in view any unforeseen cash demands by different stake holders and depositors this is called as balancing the liquidity flow of cash . All the commercial banks do not keep the cash assets always in liquid form however they keep it in safeguarded way called as Bills Of Exchange and get it liquidated any time whenever the cash demands are raised by their stake holders and depositors. This way there money is also in safe hands and cash Liquidity is maintained appropriately.

Self Reliable & Self Sufficient – Central Bank of any Country is the backbone for any financial stability as Money of each and every bank Commercial – Govt is safe guarded by Central Bank however all commercial banks through Money Market keeps on investing their money in Short Term Loans and whenever they want money they call it from Money Market hence they avoid it borrowing it from Central Bank at Higher Rate this way the smooth functioning of investments and returns keep on happening and constant flow of Cash is maintained and businesses run smoothly.

Assistance to Central Bank – Money Markets if not functioning properly in its absence Central Bank appropriately fulfills the responsibilities and demands towards society however Money Markets gives ease in different ways to to have easy functioning of Central Bank.

A) Central Bank Or Reserve Bank Of any country can easily implement different rate of interest as per the market demands and scenarios hence Money Market and its customer friendly instruments can help Central Bank to formulate different rules to have different banking Policies implemented smoothly and efficiently.

B) As markets are constantly endangered due to different markets risks Money Market in one way helps to give signals to take immediate actions getting implemented by Central Bank or Reserve Bank to have new policies getting implemented in scenarios of uncertainty and in one way stabilizing the Economy.


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