Money market

There are several money market instruments in most Western countries, including treasury bills, commercial paper, banker's acceptances, deposits, certificates of deposit, bills of exchange, repurchase agreements, federal funds, and short-lived mortgage- and asset-backed securities.

Money market trades in short-term financial instruments commonly called "paper".

These instruments are often valued with reference to the London Interbank Offered Rate (LIBOR) for the specific term and currency.

Finance companies usually secure their funding by issuing substantial amounts of asset-backed commercial paper (ABCP).

States and local governments issue municipal paper, while the U.S. Treasury issues Treasury bills to fund the U.S. public debt: Money markets serve five functions—to finance trade, finance industry, invest profitably, enhance commercial banks' self-sufficiency, and lubricate central bank policies.

The main objective of commercial banks is to earn income from its reserves as well as maintain liquidity to meet the uncertain cash demand of its depositors.

[7] Policy Implementation: Well-integrated money markets enable central banks to achieve widespread influence across financial sub-markets efficiently.

When the central bank adjusts its policy rate, these changes transmit rapidly through interbank markets to other financial instruments and ultimately to the broader economy.

However, as Brunnermeier & Koby (2018) note, there are limits to the effectiveness of monetary policy through these channels, particularly in low-interest-rate environments.