‘Ana Lyn Abad BSAIS 501 04 Activity 1-ARG Money Market instruments |LPURPOSE OF MONEY MARKET Inn unregulated world, the money markets should not be needed because of the banking industry. The latter exists primarily to provide short-term loans and to accept short-term deposits. They have an efficient advantage in gathering information, which should eliminate the need for the money markets. Also, because of their continuing relationships with customers, banks offer loans more cheaply than diversified markets. Furthermore, deposits placed in banks and thrifts are more liquid and safe compare with the short-term securities offered for sale in the money markets. Given the advantages that banks have, why do money markets exist at all? Discuss your answer in no more than five (5) sentences. Discussion: * The purpose of the money market exists alongside the banking industry due to various reasons. While banks primarily offer short-term loans and accept short-term deposits efficiently, money markets serve as a complementary platform for various financial instruments and activities. Money markets exist because they provide a level of diversity, liquidity, and competitiveness not found within traditional banking channels. Money markets can accommodate different participants, including corporations and governments, enabling them to manage surplus funds and liquidity needs efficiently. in summary, money markets coexist with banks to offer diversity, liquidity, and competition in the financial landscape. ILPARTICIPANTS IN THE MONEY MARKET A money market is an ideal place for a firm or financial institution to “warehouse” surplus funds until they are needed. Given below are those firms or financial institution otherwise known as participants. Now, discuss how the money market meets its liquidity requirements and cite an example demonstrating the concept. Lnvestment Companies Discussion: Investment companies participate in the money market to meet their liquidity requirements by investing in short-term securities and money market instruments. For example, an investment company ‘may invest in commercial paper or Treasury bills to park surplus funds temporarily, ensuring they can readily access cash when needed 2. Commercial Banks Discussion: Commercial banks participate in the money market to balance their liquidity needs. They can invest in various money market instruments to optimize their short-term asset-iability management. For instance, a bank might purchase certificates of deposit (CDs) or short-term government securities to ‘maintain liquidity while earning interest. 3, Bureau of Treasury Discussion: The Bureau of Treasury, typically representing the government, participates in the money ‘market to manage its short-term financing needs. They issue Treasury bills to raise funds for government operations and debt management. By doing so, they meet their liquidity req flow efficiently rements and manage cash