The money market is the financial market for high-quality debt instruments issued with an original maturity of up to one year. The money market is distinguished from the capital market, where debt instruments having an original maturity of greater than one year are issued and traded.
Money market instruments are usually high-quality relatively large-denomination debt instruments issued by corporations, government entities and financial institutions having an original maturity of one year or less. Money market instrument are distinguished from debt capital market instruments, such as notes and bonds, which are issued with an original maturity of greater than one year.
Money market instruments can be negotiable or nonnegotiable, domestic or foreign and issued by nonbank corporations, financial institutions and public entities and agencies. The negotiable money market instruments that are issued or originated by nonbank and bank corporate entities and traded in domestic markets are:
- Certificates of deposit (CDs);
- Commercial paper (CP);
- Asset-backed commercial paper (ABCP); and
- Bankers’ acceptances (BAs).
Nonnegotiable money market instruments include such bilaterally agreed financial arrangements as interbank deposits and repurchase agreements (repos).
Money market instruments commonly have a low yield due to their short maturity, low credit risk of the issuers and the low liquidity risk of actively traded instruments. Because corporate money market instruments trade in relatively high denominations – generally $100,000 and multiples thereof in the US money market and targeted mainly to institutional investors, rather than private investors.
The money market instruments that trade offshore in the Euromarket (foreign markets) include Euro-certificates of deposits (ECDs), Euro commercial paper (ECP) and Euronotes.