CA Foundation · Business Economics · Money Market
Which of the following best describes the role of the money market in relation to the economy's need for funds?
The money market balances short-term surpluses and deficits of banks, firms and government by letting surplus holders lend to those needing temporary funds. Long-term capital formation belongs to the capital market, not the money market.
- AIt provides long-term finance for fixed capital formation by industry
- BIt helps equalise short-term surpluses and deficits of banks, firms and the governmentCorrect
- CIt fixes the exchange rate between the rupee and foreign currencies
- DIt regulates the issue of equity shares by companies
Explanation
The money market deals in short-term funds, allowing those with temporary surplus cash to lend to those with temporary deficits. Long-term finance for fixed capital is the job of the capital market, so option A is wrong. Exchange rate fixing and equity regulation are not money market functions.
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