CA Foundation · Business Economics · Money Market
Which of the following best describes the role of the money market in an economy?
The money market is a market for short-term funds, generally maturing within a year. It lets entities with temporary surplus cash lend to those with temporary deficits, thereby balancing liquidity. Long-term finance and equity shares belong to the capital market, not the money market.
- AIt provides long-term finance for building fixed assets such as plants and machinery
- BIt is a market for short-term funds, helping participants balance temporary surpluses and deficits of liquidityCorrect
- CIt deals mainly in equity shares of listed companies
- DIt fixes the exchange rate between the rupee and foreign currencies
Explanation
The money market deals in short-term funds, generally up to one year, and lets those with idle cash lend to those with temporary shortages. Long-term finance and equity belong to the capital market, and exchange rates are determined in the foreign exchange market.
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