A money market is created by financial institutions and dealers in money or credit who wish to either borrow or lend. Participants borrow and lend for short periods of time, typically up to thirteen months. Money market trades in short-term financial instruments commonly called “paper.” This contrasts with the capital market for longer-term funding, which is supplied by bonds and equity.
The core of the money market consists of inter-bank lending–banks borrowing and lending to each other using commercial paper, repurchase agreements and similar instruments. These instruments are often bench marked to (i.e. priced by reference to) the London Interbank Offered Rate (LIBOR) for the appropriate term and currency.
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