Money market

The money market is where governments, banks, and corporations borrow and lend for short periods — one year or less. In contrast to the capital market, which handles long-term financing through stocks and bonds, the money market exists to manage short-term cash needs: covering payroll, financing inventory, or parking idle cash safely for a few weeks or months.

Common money market instruments include Treasury bills (short-term U.S. government debt sold at a discount), commercial paper (unsecured corporate IOUs, typically maturing in 270 days or less), negotiable certificates of deposit, banker's acceptances used in international trade, and repurchase agreements. Most are issued at a discount and mature at face value rather than paying periodic interest. Because maturities are short and issuers are high quality, money market instruments carry low default risk and low returns.

In economics, "money market" also names the model of money supply and money demand that determines the nominal interest rate. In the AP Macroeconomics version, the money supply is drawn as a vertical line set by the central bank, money demand slopes downward, and their intersection sets the equilibrium interest rate — shifting either curve moves rates.

Both meanings are exam material. AP Macroeconomics tests the money market graph and how central bank policy shifts it, while FINRA exams like the Series 66 and Series 10 test money market instruments as the low-risk, high-liquidity corner of the securities universe and their role in suitability decisions.