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The money market is a set of wholesale markets for the exchange of money and other short-term financial assets. Characteristic features of financial assets traded in the money market are high liquidity and a reduced level of risk. Examples of the money market are short-term credit markets (loans, credits, etc.) and securities markets (treasury bills, company notes, mortgage securities, etc.). Among the functions of the Market in Canada is financing to balance the state deficit, facilitate the achievement of economic policy objectives. Mainly, it provides the possibility of obtaining securities or securities with high liquidity and profitability in order to preserve a portion of the wealth. Here are the 5 things you should know about this market: 1. It offers liquidity: one of its characteristics is that the instruments that are issued have a high possibility of negotiation and have a pre-established return. Besides, they generate yields at fixed or variable rates from very short terms such as days to years. 2. It is a low-risk investment: This market makes the rights of a financial transaction valid, which represents the commitment made previously by the issuer to return the borrowed amount plus interest on a given due date. 3. In the money market, there is the primary and secondary market: the primary is formed by new debt placements. This means that they are people who for the first time have access to a debt never placed before. In the secondary, they freely demand and offer securities that were previously placed and their objective is to create fairer prices that reflect the conditions that investors perceive in it. 4. In the broker money market, it is important: the person in charge of building a link between the buyer and the seller. Seller is an agent that executes orders on behalf of customers and charges a transaction fee as compensation for their service. 5. There is a money table: it is an area within the brokerage houses where the purchase and wholesale of money market financial instruments are centralized. Its main objective is to provide the promotion area with the instruments requested by customers. It carries out trading operations with other entities of the financial sector, such as banks and brokerage firms to obtain returns on these purchase and sale movements. Now you know how it works and what are the advantages of this market. It is time that you decide to access it and you can define it based on your risk tolerance, financial goals, and investor profile. The importance of the money market We can consider money markets as one of the pillars of the financial system of any economy, in which intermediaries and other financial entities manage and exchange large amounts of money. In our country, most of the activities in these markets are carried out in the so-called financial floors of the banks, in the negotiation centers of non-bank financial institutions. In this way, all the economic entities that participate in the market collaborate in the cash flows of the economy. A part of these funds is channeled towards consumers for salaries and salaries, allocating a percentage of these resources to the purchase of goods and services, while the remaining is conserved as savings by obtaining financial assets for deposits or for the Retirement Savings System. On the other hand, companies receive monetary resources for the sale of their goods and services. These resources are used to cover their production costs, the optimization of their inventories, or to carry out new projects, as well as to pay the expenses of shareholder capital. One of the most demanding sectors of these fund flows is the public sector; the monetary resources obtained are used in public works, as well as in subsidies. In this way, both the public and private sectors have remained in constant competition for obtaining the monetary resources they need to carry out their projects. To these sectors is added that of financial intermediaries, which is responsible for channeling the flows of funds from the surplus sectors to the deficits that demand it, thereby obtaining a financial margin in the form of remuneration for the service. Types of Money Market Funds There are different types of money markets fund and some are here. 1. Institutional Funds: Institutional funds in the money market place high demands on the smallest possible size of investments that offer stock classes. They offer low costs, and target customers such as corporations, governments, or fiduciary companies. They are often designed in such a way that money from the main operating accounts of the companies comes to them on an overnight basis. Large national trading networks, as a rule, have many bank accounts throughout the country, but electronically the free funds from them are automatically transferred to a deposit in the money market fund. 2. Retail Funds: Money market retail funds are primarily targeted at private individuals, and they account for about a third of the assets of the entire money market. By themselves, they have several varieties: funds that invest in government securities; funds investing in non-government (commercial) securities; non-taxable funds. Their profitability is usually slightly higher than in savings accounts with a bank. In turn, the profitability of funds investing investor funds in commercial securities (with a high credit rating) is somewhat higher than for government securities. However, investing in such funds involves a higher risk of potential losses if the company whose securities were acquired defaults. Depending on the legislation in a particular jurisdiction, the resulting investment income from government securities may be exempt from income tax. However, its profitability almost always remains below the market. Nevertheless, they remain quite attractive for some categories of investors. What do you invest in money market funds: Usually money market funds invest in short-term instruments, the circulation period of which does not exceed one year. By holding investments for a short period of time, they achieve risk reduction. The general rule is that the weighted average repayment period for all investments should not exceed 90 days. The logic is extremely simple, the longer the period for which money is borrowed, the higher the likelihood of unforeseen events and the default of the borrower. Typical investment instruments for money market funds are treasury bills, short-term commercial paper, and certificates of deposit.
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