[PDF Notes] What are the Sources of Funds for New York Money Market?

Demand for funds in the New York money market comes from the following sources;

1. U.S. Government:

The U.S. Government is the major participant on the demand side of the New York money market. The government sells new issues of securities to repay the federal debt.

2. State and Local Governments:

State and local governments also require short-term funds during the periods when they await the receipt of periodic tax payments. Sometimes, they borrow in anticipation of the┬že receipts by selling tax-anticipation notes.

3. Business Firms:

Business firms generally meet their short-term credit requirements through negotiated loans from commercial banks or other financial institutions. Some large, well-known firms of good credit standing issue commercial papers. Still others seek funds in the open market.

4. Finance companies:

Some big finance companies sell commercial papers directly to investors and utilise the funds thus obtained to finance businesses and consumers.

5. Dealers in Foreign Trade:

Firms engaged in foreign trade require short-term funds to finance the imports and exports of goods.

6. Brokers and Dealers:

The brokers act as middlemen between the buyers and sellers of securities on a commission basis. They need funds to relend to customers desiring to buy securities. Dealers, on the other hand buy securities for themselves and resell them at a profit. Security dealers, like merchants, need funds to maintain inventories.

7. Depository Institutions:

Depository institutions, in general, and the banks, in particular, function actively on both demand and supply sides of the money market and thus play an important role in bringing equilibrium in the money market.

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