ACCA Applied Skills · Financial Management · The nature and role of money markets
Which of the following best describes the primary function of the money markets?
The money markets exist to let institutions, companies and governments borrow and lend large sums of wholesale funds for short periods, normally under one year. Long-term equity finance and share trading belong to capital markets, while exchange rates are determined in foreign exchange markets.
- AProviding long-term equity finance to listed companies
- BEnabling short-term borrowing and lending of wholesale funds between institutions, companies and governmentsCorrect
- CAllowing investors to trade ordinary shares of quoted companies
- DSetting the exchange rate between two currencies
Explanation
Money markets deal in short-term (usually under one year) wholesale funds, allowing surplus holders to lend and deficit holders to borrow. Long-term equity finance and share trading belong to the capital markets, and exchange rates are set in the foreign exchange market.
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