This lesson provides an in-depth examination of the money markets and the instruments traded within them. It covers the characteristics of money market instruments, their use by different participants, and the role of money markets in financial system liquidity.

• Characteristics of Money Markets: Money markets are wholesale markets for short-term debt. Key features include high liquidity, low risk (due to short maturities and high credit quality), and large transaction sizes. Money markets are dominated by institutional participants (banks, corporations, governments, money market mutual funds) .

• Treasury Bills (T-Bills): Short-term debt issued by national governments (US Treasury, EU member states). T-bills are considered risk-free, are issued at a discount to face value, and have maturities ranging from a few days to one year. They are the benchmark risk-free asset .

• Commercial Paper: Unsecured, short-term promissory notes issued by large, creditworthy corporations to fund working capital. Maturities typically range from 1 to 270 days. Commercial paper is not guaranteed and is issued at a discount .

• Certificates of Deposit (CDs): Time deposits issued by banks that pay a fixed interest rate and have a specified maturity. Large-denomination CDs (over $100,000) are negotiable and can be traded in secondary markets. They represent bank liabilities .

• Eurocurrency and Repurchase Agreements: Eurocurrency refers to deposits in banks located outside the currency’s home country. Repurchase agreements (repos) are short-term loans involving the sale and repurchase of securities; they function as collateralized borrowing and are a key source of short-term funding .