Question

Outline the basic operation and economic role of the money markets.

Answer 1

Money markets play the most important role in providing economic stability and development for the economy.

In such markets, borrowers and lenders come together for common mutual interest and benefit. While lenders benefit by lending money and making interest income, borrowers benefit by being able to get money when needed the most.

Also, economic stability is promoted by central institutions like banks and deposit institutions by providing short term liquidity to the government.

Thus, the basic Operation of money markets is to ensure money supply is efficiently done in the economy and the best use is made out of it.