Fundamentals of the Money Market

The recent liquidity crises has placed a spot light and greater scrutiny on short-term inter-bank lending operations, which to a large extent involve money market operations. The debt market, made up of the money market and the bond market, is an important element of the financial system. The usual description of the money market, however, is not adequate because this market is much more than the market for short-term marketable debt instruments. The level of bank lending rates influences the demand for credit, and growth in the latter is the main driver of the growth rate in the money stock. This significant money creation role of the banks is played out in the money market. This course will discuss the workings of the international financial system and present the elements that make up the money market, with a focus on generally neglected areas such as the interbank market and money creation.