The Money Market

Generally, corporations raise money by issuing long term debt and equity instruments. Themoney market is the a market which is used for buying and selling short term loanable funds in the form of securities and loans. Money is not what is traded in the moneymarket. Short term loans are traded which can be converted into cash rather quickly. The buyer of a money market instrument is the lender. The seller of the money market instrument is the borrower. Money market instruments have a maturity of one year or less. Most have a maturity of six months or less. The majority of money market instruments are issued at a discount. This means that the lender of the money does not receive interest payments. Rather, you might lend $96,000 and receive $100,000 at maturity. For the most part, $100,000 is the minimum amount which is traded in the money market. Money market instruments are regarded as quite safe. Of course, there are some instruments which are considered more safe than others. T-Bills are considered safer than commercial paper. Nevertheless, they are all considered low risk.

The money market trades both corporate and government dept securities T-Bills are the majority of what's traded in the money market. However, Treasury Notes are also traded. Treasury Notes have maturities from one year to ten years. T-Bonds are also traded. However, the only T-Bonds traded have one year or less to maturity. One of the greatest advantages to the Money Market is the great liquidity. It is such a huge market that the spreads are kept relatively low. Also, interest earned from the Money Market is free of state tax. One last feature of the Money Market is the absence of business risk.

source: http://stason.org/TULARC/investing/bonds/The-Money-Market.html