Money and Money Market

Money is an important part of our life, without which existence and normal functioning in our society is almost impossible. The degree of their importance to society is reflected in the ambiguous attitude towards money. They determine the level of social status and welfare, while being the root cause of most crimes. Admiration and condemnation are the two opposite poles of attitudes toward money.

Money - a product with certain properties, such as: equal quality, storageability, economic divisibility, compactness, high cost per unit of weight / account, constant cost. Naturally, money is a specific type of commodity, they are not sold and are not bought in the generally accepted sense of buying and selling goods. Money at an alternative cost is changed to liquid assets. This value is measured in units of the nominal rate of interest.

There are certain institutions whose main function is to ensure the interaction of supply and demand for money. The network of such institutions is the money market. The money market is a market of highly liquid short-term securities. If the demand and supply curves overlap, the balance of assets, agents and money offered by central banks takes place in the market within the framework of monetary policy.

In order for monetary policy to be successful, it is necessary to measure the money supply. This is rather difficult to do, since almost all types of assets can perform the functions of money, and it is almost impossible to separate the actual money and liquid assets.

Money and the money market allow the state to implement monetary policy by supporting the supply of money (expansion or contraction of the money supply) at a certain level, so as not to cause inflation or an economic recession. If this policy is carried out correctly, in the economy there is always such a mass of money and credits that contributes to the development of the economy.

If the money market offers too much money, they become cheaper, and interest rates on loans are reduced. At the same time , the inflation rate is growing , and the money that loan borrowers are currently paying on loans "cost" less than when they were taken on credit. Compensation of the purchasing power of money translates into an increase in interest rates.

The money market solves a very difficult task: redirects money savings from those who earn more, to those who spend more. Channels of such financing are direct and indirect. Direct channels imply a direct transfer of funds to borrowers in exchange for shares or debentures. Indirect channels assume the presence of intermediaries - banks, insurance companies, funds.

The world money market is a very complex mechanism, the functioning of which is based on certain criteria. These criteria (the main instruments of money transfer, the main signs of cash flows, the economic purpose of buying money) allow you to classify the markets that make up the money market. They distinguish the market of loan commitments, the foreign exchange market, the securities market, the market of bank loans, the stock market, the capital market and the money market. Naturally, the last market, the money market, is the main one in the structure of the money market.

Demand for money is determined by the desire of economic entities to accumulate a stock of money for a certain moment. A supply of money, on the contrary, is a money supply, which economic entities agree to grant to borrowers. Since the proposal is made up of the available money in circulation and the issuing activity of banks, banks are guided precisely by the demand for controlling the supply of money.