ABSTRACT

At the outset, it is desirable to define what precisely we mean by a 'money market'. It will be a market that facilitates the borrowing and lending of short-term funds (say, up to periods of two to three years) and is usually concentrated in a particular centre (sometimes in two or more related centres). In all its dealings, it will be guided by the purely commercial considerations of price and profit, whether the parties be concerned with the borrowing and lending of money or the buying and selling of short-dated securities, such as Treasury bills, commercial bills (or similar instruments), and short-dated government bonds. If a market grows up in this image, it will be a 'money market'. More frequently, however, such a market will not yet exist (at least not in a developed form) and the proposal will then be to establish a 'money market'. If this is the objective, there are a number of additional questions that must be put in order to determine whether a money market is 'necessary'. It is only on this basis that a sensible decision can be reached in any particular instance.