what is money market?

Answer 1

A money market is a mutual fund that holds short-term debt instruments such as commerical paper, CDs and banker acceptances. A Government Money Market Furnd or Treasury Money Market Fund will hold the appropriate government debt securities such as Treasury Bills. A municipal money market fund will hold short-term tax-free debt instruments, including floaters.

The key point about a money market fund in the U.S. is that the major ones are quite safe and an investor should not see the fund's value decline below 1.00. There have been a couple of times that severe distress could have caused a fund to "break a buck" and investors would have lost a little money, but the Fund Companies that run the money market fund received permission from the SEC to bail out the fund and prevent losses. The last time I can recall was during the Drexel Burnham Lambert meltdown and the real estate commericial paper fiasco in 1989. The SEC instituted new rules limiting the amount of A2/P2 paper the funds could hold and I don't recall a problem since.

Answer 2

If you were asking what is a money market fund then the above answer is correct, however, if you are asking what is the money market, that is a different answer.

There are a number of money markets. The primary market is the "Federal Funds Market," where banks loan money to one another for a single day. The Federal Funds Market is usually set near the two year rate of interest.

The market retail investors usually mean is the market for very short maturity debt. It is so short that it is nearly money and wide price swings do not occur the way they do in the longer end of the market so prices are very stable over short periods of time. These include publicly traded items like near to maturity corporate bonds, treasuries and even traded certificate of deposits. Outside the retail market it also includes banker's acceptances and commercial paper.