Understanding Money Markets

Money Markets are simply markets where highly liquid assets are traded. Money markets can involve financial and corporate markets for money. Typically, high volumes are traded between a few large financial institutions. They are a way of ensuring liquidity between banks and other institutions. The price of money is dependent upon the interest rate. This is effectively the cost of borrowing or lending money.

Money Markets can have a significant impact upon the wider economy. A shortage of funds in the money markets can cause higher interest rates for consumers or shortage of funds for lending. The global credit crunch of 2007/08 was related to a difficulty of raising funds on the money markets.

• Understanding different interest rates

• Sterling Money Markets at Bank of England. The Bank of England’s framework for its operations in the sterling money markets is designed to implement the Monetary Policy Committee (MPC)’s interest rate decisions while meeting the liquidity needs, and so contributing to the stability of, the banking system as a whole.