Money Market: Definition, Function, Characteristics, and Money Market Instruments

What is a money market? Understanding Money Market is a market that becomes a meeting place for fund owners (Funder) with parties who need funds (Consumer) , where the meeting can be held directly or through an intermediary (Broker) on demand transactions (Demand) or supply (Supply) to a number of funds or short-term securities.

According to experts, the money market is included in the abstract market, that is, markets that carry out trade transactions for an item but the goods are not in the market. But there are sample items in the form of examples of securities, brochures in limited quantities.

That is, in the financial market we will not find sellers who are offering “physical” money as is the case in certain markets. The goods sold are money, but represented by short-term securities with a maximum time limit of one year.

Also read:

  • Understanding Capital Market
  • The Difference between Money Market and Capital Market

Characteristics of the Money Market

In accordance with the notion of financial markets, this market has certain characteristics that distinguish it from other forms of markets, for example the capital market. The characteristics of the financial markets are as follows:

  • Buying and selling transactions are not tied to a particular place.
  • Only meet short-term funds
  • The money market mechanism emphasizes more on meetings between fund owners and those who need funds.

Functions and Purposes of Money Market

The main function and purpose of financial markets is to bring together the owners of funds with those who need funds. Referring to the above definition of financial markets, some functions and objectives of the existence of financial markets are as follows:

  • As a mediator and facilitator of trading short-term securities.
  • As a source of funds for working capital for companies that need additional capital for expansion.
  • As a mediator and facilitator of investment activities from foreign investors to local entrepreneurs in the form of short-term loans.
  • As a facilitator for people who want to buy Money Market Securities and Bank Indonesia Certificates (SBI).

Also read: Understanding Money

Money Market Instruments

In the money market there are several securities instruments that are traded. The money market instruments are as follows:

  1. Bank Indonesia Certificates (SBI), namely securities in the form of short-term debt issued by the government.
  2. Money Market Securities (SBPU), namely securities traded on a discount basis with Bank Indonesia or other financial institutions determined by Bank Indonesia.
  3. Certificates of Deposit, i.e. financial instruments issued by the Bank against deposits of customers with specified interest rates and maturity periods.
  4. Treasury Bills, which are debt securities issued by the government of a country with a period of less than one year.
  5. Promissory Notes, which is a statement of ability to pay short-term debt and credit transactions conducted by creditors and debtors.
  6. Commercial Paper, which is a debt instrument issued by a company to investors without collateral, which is used to finance short-term obligations.
  7. Call Money, which is a financial instrument used for lending and borrowing transaction activities for a number of funds conducted between banks with a short term (maximum of 1 year).
  8. Banker’s Acceptance, which is a security used for the export-import of goods, can also be used in foreign exchange transactions.

Also read:

  • Definition of Investment
  • Definition of Stock

Thus a brief explanation of the understanding of financial markets, their functions and objectives, characteristics, and financial market instruments. Hopefully this article is useful and broadens your horizons.


by Abdullah Sam
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