Features/Characteristics of a Developed Money Market

A developed money market refer to one which is comparatively efficient in the sense that it is responsive to changes in demand and supply of funds in any of its segments and effects initiated in any part of it quickly spread to others without significant time lag.

To meet the definition, a money market should possess these features:

1. Presence of a Central Bank : A Central Bank with adequate legal power, sufficient relevant information and the expertise, must exist as a lender of last resort and as the initiator and executor of monetary policy as a whole. 
2. Presence of a Developed Commercial Banking System, Development banking System and Merchant Banking System A well developed money market should be characterised by the presence of a developed Com- mercial Banking System, Merchant Banking System and Development Banking System along with a wide spread banking habit on the part of the public. 
3. Adequate Supply of a Variety and Quantity of Financial Assets In a well developed money market, there should be an adequate supply of a variety and quantity of short-term financial assets or instruments such as Trade Bills, Treasury Bills, Treasury Certifi- cates, Commercial Papers, etc. 
4. Presence of well-developed sub-market The existence of well-developed sub-markets and their adequate responsiveness to small changes in interest and discount rates make room for a well developed money market. If the demand and supply of certain instruments dominate, the interaction between different interest rates will be limited.
5. Existence of Specialised Institutions For competitiveness and efficiency, there must exist specialised institutions, in particular, types of assets e.g. specialised discount houses, acceptance houses, specialising in accepting bills or Spe- cialised dealers in government securities. 
6. Existence of Contributory Legal and Economic Factors For the money to be well-developed, there must exist appropriate legal provisions to reduce trans- action costs, protect against default in payment while prerequisite economic forces such as speedy and cheap transmission of information, cheap fund remittance and adequate volume of Trade and Commerce must exist. 

Students Assessment Exercise

What are the basis features of money market?