Money Market

The money market is a financial system where debt instruments are traded with a maturity of one year or less.

The instruments mainly include treasury bills, commercial paper, and certificates of deposit, which are offered by the government, big companies, and banks having a maturity ranging from a few days to a year.

Imagine an investor, Jerry. He has one thousand dollars that he does not need right away. Instead of letting it sit idle, he can invest it in the money market instrument issued by Peoples Bank for a brief period of six months at an interest rate of five percent per annum.

When Jerry invests in these money markets, he essentially loans his money to the bank for six months. In return, the bank promises to pay Jerry back his initial investment of one thousand dollars, plus interest of twenty-five dollars.

Since the instruments in the money market are typically issued by reliable entities, the risk of default is relatively low, making them a safe bet for investors.

Overall, the money market helps grow the investor's money by offering a low-risk option and earning a little interest.