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Money Markets
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Money Markets

Money market instruments are the least talked about financial asset because they are primarily used by the Treasury operations of Central and international banks trading in an exclusive, highly sophisticated market.

They are investments with a lifespan of 1 year or less, which can be liquidated (sold for cash) at very short notice - usually within a day. It is the liquidity which makes the market useful to its key players - and it is the exclusive nature of the marketplace and some basic product characteristics which creates this high level of liquidity.

Market participants

Deep, liquid money markets exist particularly in USD, EUR and GBP. Issuers are all top quality names of high creditworthiness. Investors are mainly banks, shuffling reserves around the world and speculating on the direction of interest and exchange rates. Market participants all have pre-arranged credit lines between each other to enable fast trading. So there is constant trading of these extremely high quality assets between market participants exposed to very little counterparty default risk.

Product characteristics

Money market instruments are characterised by low credit risk and high liquidity. They sit at the bottom end of the risk/return spectrum.

The short maturity date and high issuer quality creates an investment proposition with little or no investment risk. The cash value is safer in a money market instrument than in any other asset class. There is virtually no risk of losing capital (in a mature, sophisticated debt market). This means they usually offer very low returns because investors are rewarded primarily by the security value of the assets.

Within the asset class, there are differing returns based on different levels of creditworthiness, from the shortest dated government bills to 1 year commercial paper.

But they are all very secure relative to their alternatives in longer-dated, more segmented bond markets.

This material has been prepared by FT Knowledge and is for information purposes only. It has not been independently verified by Standard Chartered Bank and makes no recommendation and accepts no responsibility or liability with respect to the accuracy or correctness of information contained in the material. It has not been prepared to be suitable for any particular person or class of persons and should not be relied on as a basis for investment decisions. The material in this document is not intended as an offer or solicitation of an offer to buy or sell any financial products. It does not constitute a prediction of likely future movements in rates or prices or any representation that such future movements will not exceed those shown in this document. Past performance is not necessarily indicative of future performance; the value, price or income from investments that may fall as well as rise. Before making any investment, you should seek your own professional advice.