The money market is a market in which the cash requirements of market participants who are long cash are met along with the requirements of those that are short cash. This is identical to any financial market; the distinguishing factor of the money market is that it provides for only short-term cash requirements. The market will always, without fail, be required because the needs of long cash and short cash market participants are never completely synchronized. The participants in the market are many and varied, and large numbers of them are both borrowers and lenders at the same time. They include:
■ the sovereign authority, including the central government (“Treasury”), as well as government agencies and the central bank or reserve bank;
■ financial institutions such as the large integrated investment banks, commercial banks, mortgage institutions, insurance companies, and finance companies;
■ corporations of all types;
■ individual private investors, such as high net-worth individuals and small savers;
■ intermediaries such as money brokers, banking institutions, etc.;
■ infrastructure of the marketplace, such as derivatives exchanges.
A money market exists in virtually every country in the world, and all such markets exhibit the characteristics we describe in this book to some extent. For instance, they provide a means by which the conflicting needs of borrowers and lenders can achieve equilibrium, they act as a conduit for financing of all maturities between one day and one year, and they can be accessed by individuals, corporations, and governments alike.
In addition to national domestic markets, there is the international cross-border market illustrated by the trade in Eurocurrencies. Of course, there are distinctions between individual country markets, and financial market culture will differ. For instance, the prevailing financial culture in the United States and United Kingdom is based on a secondary market in tradable financial assets, so we have a developed and liquid bond and equity market in these economies. While such an arrangement also exists in virtually all other countries, the culture in certain economies such as Japan and (to a lesser extent) Germany is based more on banking relationships, with banks providing a large proportion of corporate finance. The differences across countries are not touched; rather, it is the similarities in the type of instruments used that is highlighted.