Money market mutual funds are designed to offer savers low-risk, liquid and short-term investments. They are normally offered to investors by companies that have invested in other money market instruments and are almost always composed of highly rated paper. Investors can choose between municipal money funds, state-level debt funds, Treasury funds or funds that focus on private commercial money market exposure.
What Makes a Money Market?
A market can be described as a money market if it is comprised of highly liquid, short-term assets. Maturities should not exceed one year on instruments, and they can be as short as one day. This includes assets such as certificates of deposit, or CDs, interbank loans, money market mutual funds, Treasury bills (T-bills), repurchase agreements, commercial paper and short-term securities loans.
The Federal Reserve Board tracks money markets through its flow of funds survey. It is standard for money markets to account for nearly one-third of all credit in the United States.
Money Market Mutual Funds
Some money market funds focus on government paper, such as U.S. Treasurys or state debt. For example, T. Rowe Price offers a New York Tax-Free Money Fund (NYTXX), which attempts to build a short-term, liquid portfolio of assets that is exempt from federal, New York state and New York City income taxes. It is only one of several such New York tax-preferred money funds. Similar funds are found for California, Maryland and other high-tax states.
One very popular money market fund is the Vanguard Treasury Money Market Fund Admiral (VUSXX). This fund has a very low expense ratio at 0.08% average and requires a minimum investment of $25,000. As the name suggests, VUSXX focuses on U.S. Treasury securities.
Funds that do not focus on government paper tend to have higher expense ratios, but they have been known to return more interest income. An example is the Schwab Retirement Advantage Money Fund (SWIXX), which invests in a wide pool of commercial securities such as JP Morgan or Bank of Nova Scotia repurchase agreements.
Definition: Money market basically refers to a section of the financial market where financial instruments with high liquidity and short-term maturities are traded. Money market has become a component of the financial market for buying and selling of securities of short-term maturities, of one year or less, such as treasury bills and commercial papers.
Over-the-counter trading is done in the money market and it is a wholesale process. It is used by the participants as a way of borrowing and lending for the short term.
Description: Money market consists of negotiable instruments such as treasury bills, commercial papers. and certificates of deposit. It is used by many participants, including companies, to raise funds by selling commercial papers in the market. Money market is considered a safe place to invest due to the high liquidity of securities.
It has certain risks which investors should be aware of, one of them being default on securities such as commercial papers. Money market consists of various financial institutions and dealers, who seek to borrow or loan securities. It is the best source to invest in liquid assets.
The money market is an unregulated and informal market and not structured like the capital markets, where things are organised in a formal way. Money market gives lesser return to investors who invest in it but provides a variety of products.
Withdrawing money from the money market is easier. Money markets are different from capital markets as they are for a shorter period of time while capital markets are used for longer time periods.
Meanwhile, a mortgage lender can create protection against a fallout risk by entering an agreement with an agency or private conduit for operational, rather than mandatory, delivery of the mortgage. In such an agreement, the mortgage originator effectively buys an option, which gives the lender the right, but not the obligation, to deliver the mortgage. Against that, the private conduit charges a fee for allowing optional delivery.