Money market
Money markets support liquidity management for businesses, governments and financial institutions. Instruments include deposits, treasury bills, commercial paper and repurchase agreements, with different credit, liquidity and collateral characteristics. Some pay interest explicitly while others are issued or traded at a discount. The market also connects to short-term interest-rate and foreign-exchange risk management. Short maturity does not mean no risk, and a quoted discount rate is not necessarily the investor's yield on the price paid. Distinguish money-market finance from longer-term capital-market funding.
Worked example
A company places cash needed in three months into a suitable three-month instrument after assessing access and credit risk. A ten-year corporate bond would not become a money-market instrument merely because the company intends to sell it in three months.
Common mistake
Classifying an instrument solely by the investor's planned holding period rather than its contractual characteristics.
Where it appears in your exams
| Qualification | Exam | Relationship | Period |
|---|---|---|---|
| ACCA | AFM | Supporting | September 2026–June 2027 |
| ACCA | FM | Direct | September 2026–June 2027 |