Understanding money markets

The money market is a subsection of the fixed-income securities market. Unlike the bond market, the money market specializes in very short-term debt securities (debt that matures in less than 1 year).

Money market securities are also called cash investments because of their short maturities.

Money market securities are essentially IOUs issued by governments, financial institutions and large corporations. These instruments are very liquid and considered extraordinarily safe. As a result, money market securities offer significantly lower return than most other securities.

In the money market, securities trade in very high denominations.

The money market is an off-exchange or dealer market. In other words, dealers buy and sell securities in their own accounts, at their own risk. This limits your access as an investor to the inventory held by your broker.

Another characteristic of dealer markets is the lack of a central trading floor or exchange. Deals are transacted over the phone or through electronic systems.

Are you interested in the money market? Here are 3 ways to access it:

  • Go through a broker.
  • Invest in money market mutual funds.
  • Purchase Treasury bills.

Tools and tips

Treasury bills, bankers' acceptances, eurodollars, etc.

Money market securities are safe investments.

Read tip - Treasury bills, bankers' acceptances, eurodollars, etc.

Understanding bonds

When you buy a bond, you're lending money to a government or business.

Read tip - Understanding bonds