The money market is a short-term borrowing market (as a rule less than one year) on which banks, insurance companies, businesses, and national governments (via central banks and public treasuries) lend and borrow funds in accordance with their needs.

Key Characteristics: 

• Short-term instruments 
• Low risk 
• Predictable and relatively low return.

How does the market operate? 

The money market is comprised of two markets: 

1. The interbank market 

The interbank market is a market reserved for banks and financial institutions, where short-term financial assets are traded. These operations help manage their ongoing liquidity and meet mandatory reserve requirements set by the central bank. The Central Bank plays a key role in this market, acting directly on it by: 

• buying or selling cash; 
• setting the refinancing rate, which affects the interest rates at which commercial banks can borrow from the Central Bank.

2. The debt securities market

Debt securities are a source of short-term and medium-term financing for companies, national governments, and banks. These include: 

• Certificates of Deposit (CDs): Issued by banks or credit institutions with a fixed interest rate and maturity. 
• Short-term Bonds: Issued by the national governments, banks and other institutions. 

Investors, such as banks, investment companies, asset managers and more, can access the money market by purchasing the above-mentioned instruments. 

What is a benchmark index and what role does it play in the Money Market? 

Benchmark indices make it possible to track changes in the various markets and establish benchmark rates for geographical areas. Examples include: 

• ESTER – Daily benchmark rate for overnight interbank deposits in the eurozone;
• FED FUNDS – A benchmark rate at which US banks lend funds held legally within the Federal Reserve to other US banks.

In Armenia, the refinancing rate set by the Central Bank of Armenia serves as the main benchmark rate for banking interest rates.