Term Paper on future prospect of money market in Bangladesh

Money markets are used to facilitate the transfer of short-term funds from individuals, corporations, or governments with excess funds to those with deficient funds. Even investors who focus on long-terms securities tend to hold some money market securities. Money markets enable financial market participants to maintain liquidity. Money market securities are commonly purchased by households, corporations, and government agencies that have funds available for short-term period. Because money market securities have a short-term maturity and can typically be sold in the secondary market, they provide liquidity to investors. Most firms and financial institutions maintain some holdings of money market securities for this reason.
The Bangladesh economy is within the mainstream of the continuously changing global financial system. Domestic as well as international trade also characterizes Bangladesh economy. Hence a financial system has developed here consisting mainly of the capital and the money market. For any underdevelopment country the existence of a well functioning money market is of paramount importance. The money market currently existing has also developed due to certain needs. In general, these needs can be termed as need for short term liquidity within our financial system, to carry out the day to day economic activities and obviously to meet and match need for short term lending and borrowing of the participants within the financial system. The money market is not a well-defined place where the business is transacted as in the case of capital markets where all business is transacted at a formal place, i.e. stock exchange. The money market is basically a telephone market and all the transactions are done through oral communication and are subsequently confirmed by written communication and exchange of relative instruments. The money market consist of many sub-market such as the inter-bank call money, bill discounting, treasury bills, Certificate of deposits (CDs), Commercial paper (CPs), Repurchase Options/Ready Forward (REPO or RF), Inter-Bank participation certificates (IBPCs), Securitized Debts, Options, Financial Futures, Forward Rate Agreement (FRAs), etc. which collectively constitute the money market.

Money market securities are the debt securities that have a maturity one year or less. They are issued in the primary market through a telecommunications network by the Treasury, corporations, and financial intermediaries that wish to obtain short-term financing. The means by which money markets facilitate the flow of funds. Treasury issues money market securities and uses the proceeds to finance the budget deficit. Corporations issue money market securities and use the proceeds to support their existing operations or to expand their operations. Financial institutions issue money market securities and bundle the proceeds to make loans to households or corporations. Thus, the funds are channeled to support household purchases, such as cars and homes and to support corporate investment in buildings and machinery. The treasury and some corporations commonly pay off their debt from maturing money market securities with the proceeds from issuing new money market securities. In this way, they are able to finance expenditures for long periods of time even though money market securities have short-term maturities. Overall, money markets allow households, corporations, and the Treasury to increase their expenditures and therefore finance economic growth.

They generally have a relatively high degree of liquidity. Money market securities tend to have a low expected return but also a low degree of risk. Various types of money market securities, their issuers, common investors, maturity, secondary market activities are listed below;