The developed money market of the country plays a significant role in the financial system through short-term securities instantly to trade and finance the short-term requirements of the industries. The money market is one of the essential parts of the country’s economy. However, the developed money market is extremely requisite for the instant development of the economy. It helps to smooth the functioning of the financial system in different mentioned ways:
Development Of Trade And Industry
It is a significant source to finance the industry and trade through commercial papers, discounting operations, and other trade requirements of short-term working capital requirements. It facilitates the development of trade and industry domestically and internationally.
Development Of Capital Market
The rates of short-term securities that exist in the money market have an impact on the long-term interest as well as the resource mobilization in the capital market. The establishment of the capital depends on the existence of the capital money market.
Horizontal Execution Of Commercial Banks
The commercial banks are facilitated with the money market for temporarily employing their surplus funds in the realizable assets. It allows the banks to provide the funds instantly at the time of need. The money market facilitates the commercial market to enhance their cash requirement in hand by economizing at the same time they need the amount due to the large withdrawals of their depositor. Commercial banks can meet their statutory needs of statutory liquidity ratio and cash reserve ratio through the usage of mechanisms of the money market.
Effective Control Of The Central Bank
To have the effective functioning of the central bank, it is crucial to have a developed money market. It helps to have successful implementation for the monetary policy of the central bank. The money brings me money to the economy in siphons and slump. The central bank controls the flow of money of the county for the promotion of growth in a stable way.
Establishing The Relevant Monetary Policy
The money market is the true indicator to determine the level of the economy. Therefore, it serves as a guide to the government to formulate and revise the existing monetary policy as per the demanded needs. Policymakers analyse the money market carefully to come up with a more relevant policy.
Government’s Non-Expensive Source Of Finance
The developed money market is one of the primary sources to raise the short-term funds via treasury bills floated in the market. When there is no established money market, the state would be pressured to issue and print more money or borrow the currency from the market. Both strategies end up with the increase of inflation in the economy so it is essential to have a smooth money market.
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