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Money Market: Money & Banking Video Lecture | Indian Economy for UPSC CSE
FAQs on Money Market: Money & Banking Video Lecture - Indian Economy for UPSC CSE
| 1. What is a money market? |  |
Ans. A money market refers to a segment of the financial market where short-term borrowing and lending of funds take place. It includes various instruments such as Treasury bills, commercial papers, certificates of deposit, and repurchase agreements. The money market provides a platform for individuals and institutions to manage their short-term liquidity needs.
| 2. How does the money market work? | |
Ans. The money market works by facilitating the borrowing and lending of funds for a short duration, typically less than one year. Financial institutions, such as banks and corporations, borrow funds from investors by issuing money market instruments. Investors, in turn, earn interest on their investments. The interest rates in the money market are generally lower compared to other longer-term investments.
| 3. What are the benefits of investing in the money market? | |
Ans. Investing in the money market offers several benefits, such as safety, liquidity, and stability. Money market instruments are usually considered low-risk investments because they have a short maturity period and are backed by reliable issuers. Moreover, these investments provide high liquidity, allowing investors to access their funds quickly. Additionally, money market investments often offer stable returns, making them suitable for conservative investors.
| 4. How can individuals invest in the money market? | |
Ans. Individuals can invest in the money market through various financial instruments. Some common options include money market mutual funds, Treasury bills, certificates of deposit, and commercial papers. Money market mutual funds are a popular choice as they pool funds from multiple investors and invest in a diversified portfolio of money market instruments. These funds are typically managed by professional fund managers.
| 5. What are the risks associated with money market investments? | |
Ans. Although money market investments are generally considered low-risk, they still carry some level of risk. One of the main risks is interest rate risk, which refers to the potential for the value of the investment to decline due to changes in interest rates. Additionally, there is a possibility of default by the issuer, especially when investing in riskier money market instruments. It is important for investors to assess the creditworthiness of the issuer before investing in such instruments.
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