The money market is one of the fundamental elements in the functioning of any state. The fact is that all financial relations within a particular country are very important for the evolution of peoples paying capacity and the further rise of its economy. The money market provides an opportunity to engage in short-term borrowing, lending, buying, and selling activities with original maturities no more than one year (Mishkin 45).
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In such a way, money becomes a valuable commodity which stipulates the further evolution of the financial sector. The importance of the sphere is evidenced by the fact that its evolution is researched by numerous investigators to create particular forecasts and determine directions of capital flow (Kidwell et al. 16). Therefore, several factors impact the money market significantly. These are asymmetric information, technological change, and regulation.
The first one could be determined as the situation when one party involved in a specific transaction or financial processes acquires greater material knowledge or crucial information than other (Mishkin 23). Under these conditions, this very party also creates a significant competitive advantage as it could act more efficiently regarding vital data it possesses (Kidwell et al. 123). Applying this concept to the money market, it is important to admit that growing asymmetrical information is a desirable outcome for actors engaged in financial relations.
For instance, borrowers creditworthiness is one of the central aspects of the money market. All lenders experience a certain uncertainty regarding their clients and their ability to pay back (Kidwell et al. 127). In this regard, banks try to gather proprietary information about individuals to protect themselves and acquire a competitive advantage by reducing asymmetric information (Mishkin 65). Additionally, the majority of lenders introduce strict measures to avoid failures stipulated by greater material knowledge (OBrien 231). These obviously shape the money market and primary actors behavior.
Technological change is the second force that impacts the given sphere significantly. The fact is that the last ten decades drastic alterations in the most important processes that shape the money market could be observed (OBrien 148). Moreover, these are preconditioned by the development of digital devices that nowadays should be considered extremely potent tools to perform financial operations or engage in specific economic relations.
For instance, the internet banking is nowadays an extremely powerful application that provides users with an opportunity to engage in the majority of operations not leaving home. The security of all Internet transactions is guaranteed by a particular bank or lender which use specific protective systems. Under these conditions, the gradual rise of technologies and their implementation in the sphere of financial operations alter the money market significantly and results in the appearance of new practices that help to enhance convenience and guarantee constant access to funds that could be transferred.
In future, even more radical changes are expected because of the shift of priorities towards the electronic funds transfers as more secure and efficient method to perform financial operations. Moreover, it stipulates the appearance of the so-called mobile money market could also be observed. The main actors involved in operations mentioned above tend to use specific platforms or applications designed to guarantee fair and fast movement of funds and minimize the possibility of frauds. That is why technological development becomes one of the essential factors that impact the money market and result in the appearance of its radical alterations.
Therefore, the future evolution of the money market will obviously depend on asymmetric information, technologies, and regulations. First, the further rise of technologies will precondition the appearance of new data collection tools. It means that new cases of asymmetric information will be observed and the difference in data will become even more significant (OBrien 123). For this reason, lenders will have to introduce a new and more efficient method to monitor clients creditworthiness and or their ability to engage in financial relations.
Moreover, the spread of technologies will also introduce new vulnerabilities and threats to the security of transactions. That is why new regulations to minimize risks are needed. Regarding the tendency toward the blistering rise of the mobile money market, its dominance in the sphere could also be predicted (OBrien 234). In general, the three factors mentioned above will shape the money market by cultivating security of transactions, increased convenience of numerous deals, transparency of approaches, and shift of priorities towards the use of fair practices.
Altogether, the money market is one of the most important aspects of the economic sphere of a state. It provides individuals with an opportunity to engage in financial relations and stimulate the flow of capital. Therefore, there are such factors like asymmetric information, technology change, and regulations that shape this market. Their importance is evidenced by the fact that the majority of approaches and methods peculiar to the field today are impacted by these factors. In future, the money market will become even more dependent on them as the rapid rise of digital devices and the tendency towards the appearance of new strategies will require corresponding changes to preserve the high level of efficiency and attractiveness.
Kidwell, David, et al. Financial Institutions, Markets, and Money. Wiley, 2011.
Mishkin, Frederic. The Economics of Money, Banking and Financial Markets. Pearson, 2015.
OBrien, Anthony. Comprehensive Guide to Private Money Markets: How to prepare & borrow from the private money markets. Independently published, 2017.