A money market where funds are traded up to a period ranging between three months to one year is :

The correct answer is - Term money

Key Points

• Term money refers to a type of money market instrument where funds are borrowed or lent for a period ranging between three months to one year.
• This differs from other money market instruments such as:
  • Call money: Funds are borrowed or lent for one day.
  • Notice money: Funds are borrowed or lent for a period ranging between 2 to 14 days.
• Term money is a critical component of the money market as it helps financial institutions manage their short-term liquidity needs effectively over a longer duration compared to call or notice money.

Additional Information

• Money Market
  • The money market is a segment of the financial market in which short-term borrowing and lending of funds occur, typically for periods of less than one year.
  • It includes various instruments such as:
    • Call money: Extremely short-term borrowing or lending for one day.
    • Notice money: Borrowing or lending for 2 to 14 days.
    • Term money: Borrowing or lending for three months to one year.
    • Other instruments like Commercial Papers, Certificates of Deposit, and Treasury Bills.
• Importance of Term Money
  • It helps financial institutions manage liquidity for a slightly longer duration compared to call and notice money.
  • Provides stability to the money market by catering to medium-term liquidity needs.
• Key Participants in the Money Market
  • Banks: Major participants that borrow and lend funds to manage their liquidity needs.
  • Financial Institutions: Use money market instruments to meet short-term funding requirements.
  • Government: Issues Treasury Bills to raise short-term funds.