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The money market is a component of thefinancial marketsfor assets involved in short-term borrowing

and lending with original maturities of one year or shorter time frames. Trading in the money markets

involvesTreasury bills,commercial paper,bankers' acceptances, certificates of deposit, federal funds,

and short-livedmortgage-andasset-backed securities.[1]

It providesliquidityfunding for theglobal

financial system.

The money market consists offinancial institutionsand dealers in money or credit who wish toeither borrow or lend. Participants borrow and lend for short periods of time, typically up to

thirteen months. Money market trades in short-termfinancial instrumentscommonly called

"paper." This contrasts with thecapital marketfor longer-term funding, which is supplied bybondsandequity.

The core of the money market consists of banks borrowing and lending to each other, usingcommercial paper,repurchase agreementsand similar instruments. These instruments are often

benchmarked to (i.e. priced by reference to) theLondon Interbank Offered Rate(LIBOR) for the

appropriate term and currency.

Finance companies, such asGMAC, typically fund themselves by issuing large amounts ofasset-

backedcommercial paper(ABCP) which is secured by thepledgeof eligible assets into anABCP conduit. Examples of eligible assets include auto loans, credit card receivables,

residential/commercial mortgage loans,mortgage-backed securitiesand similar financial assets.

Certain large corporations with strongcredit ratings, such asGeneral Electric, issue commercial

paper on their own credit. Other large corporations arrange for banks to issue commercial paperon their behalf via commercial paper lines.

In the United States, federal, state and local governments all issue paper to meet funding needs.States and local governments issuemunicipal paper, while theUS TreasuryissuesTreasury bills

to fund theUS public debt.

Trading companies often purchasebankers' acceptancesto be tendered for payment tooverseas suppliers.

Retail and institutional money market funds Banks Central banks Cash management programs ArbitrageABCP conduits, which seek to buy higher yielding paper, while themselves

selling cheaper paper.

Merchant Banks

Common money market instruments

Certificate of deposit- Time deposits, commonly offered to consumers by banks, thriftinstitutions, and credit unions.

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Repurchase agreements- Short-term loansnormally for less than two weeks andfrequently for one dayarranged by selling securities to an investor with an agreement to

repurchase them at a fixed price on a fixed date.

Commercial paper- Unsecured promissory notes with a fixed maturity of one to 270days; usually sold at a discount from face value.

Eurodollar deposit- Deposits made in U.S. dollars at a bank or bank branch locatedoutside the United States.

Federal agency short-term securities - (in the U.S.). Short-term securities issued bygovernment sponsored enterprisessuch as theFarm Credit System, theFederal Home

Loan Banksand theFederal National Mortgage Association.

Federal funds- (in the U.S.). Interest-bearing deposits held by banks and other depositoryinstitutions at theFederal Reserve; these are immediately available funds that institutions

borrow or lend, usually on an overnight basis. They are lent for thefederal funds rate.

Municipal notes- (in the U.S.). Short-term notes issued by municipalities in anticipationof tax receipts or other revenues.

Treasury bills- Short-term debt obligations of a national government that are issued tomature in three to twelve months. For the U.S., see Treasury bills.

Money funds- Pooled short maturity, high quality investments which buy money marketsecurities on behalf of retail or institutional investors.

Foreign Exchange Swaps- Exchanging a set of currencies in spot date and the reversal ofthe exchange of currencies at a predetermined time in the future.

Short-livedmortgage-andasset-backed securities

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