Money Market is the financial market for short-term borrowing and lending, typically up to thirteen months. This contrasts with the capital market ( compare capital market) for longer-term funds.

In the money markets, banks lend and borrow to each other, short-term financial instruments such as certificates of deposit ( CD) or enter into repos which are repurchase agreements. It provides short to medium term liquidity in the global financial system.

Money market derivatives include forward rate agreements (FRAs) and short term interest rate futures.( compare (derivative market)

Trading takes place between banks in money centers like New York, London, Chicago, Frankfurt, Paris, Singapore, Hongkong, Tokyo and others. 

Common money market instruments

They include

Bankers acceptance

draft or bill of exchange accepted by a bank to guarantee payment of the bill.

Certificate of deposit

time deposit with a specific maturity date shown on a certificate; large-denomination certificates of deposits can be sold before maturity.

Commercial paper

unsecured promissory note with a fixed maturity of one to 270 days; usually sold at a discount.

Eurodollar deposit

US$ deposits in a U.S. or non-U.S. bank located outside the United States.

Federal Agency Short Term Securities

securities issued by government sponsored enterprises in the US

Federal Funds

Interest-bearing deposits held by banks and other depository institutions at the Federal Reserve mainly borrowed or lend on an overnight basis.

Municipal notes

Short-term notes issued by municipalities in the US in anticipation of tax receipts or other revenues.

Repos

Short-term loans—normally for less than two weeks and frequently for one day—arranged by selling securities to an investor with an agreement to repurchase them at a fixed price on a fixed date.

Treaury bills

Short-term debt of a national government issued to mature in 3 to 12 months.