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The Purpose Of Money Market It is essential to address the purpose of having a money market in a country as the latter cannot

survive without having it integrated in its economy system. Among the purpose as follows: 1. Providing funding to the banking system The money market provides alternative funding to the banking system as banks are obliged to put aside a portion of their deposits in a form of reserves that are restrained by the Central Bank without any returns or interest while lesser rules and regulations implemented on the money market, making it 'ideal' place (Mishkin and Eakins, 2009).

2. Serving as a channel for the transmission of monetary policy


These are governed by the Malaysian Code of Conduct for Principals and Brokers in the Wholesale Money and Foreign Exchange Markets in January 1994 which set out the market practices, principles and standards to be observed (KPMG, n.d.). 3. Balancing cash inflows and outflows of the government Until the mid-1950, government domestic debt in Malaysia was insignificant as the government general kept the overall account of its budget in balance. Government securities were issued mainly to meet the investment needs of the Employees Provident Fund. However, in the last few decades, there were an increased spending for development programmes and the resultant fiscal deficit had led to more issuance of government securities (Bank Negara of Malaysia, 2000). This shows that by involving itself in the money market helps the government to strike balance between its deficit and surplus.

4. Serving as a reference in pricing all debt instrument. Interest rates on money market instruments serve as a reference rates for pricing all debt instrument (Mensah, 1997). Therefore, the money market has a large implication on the economy. 5. Filling the institutional gap in the financial system This is one of the reasons, Malaysia has developed the market. This progress has enhanced its role in supporting economic growth and transformation. In particular, these developments were geared towards nurturing the capital market to fill the institutional gap in the financial system and complement the role of traditional lenders (Harun, n.d.).

References Bank Negara Malaysia. (2000). Role, Powers and Functions of Bank Negara Malaysia in Debt Markets. Malayan Law Journal, 177-189 Harun, S. (N.D.) The development of debt markets in Malaysia. [ On-line ] Available: http://www.bis.org/publ/bppdf/bispap11m.pdf. Retrieved on 1 March 2011. KPMG. Financial System of Malaysia. [ On-line ] Available: http://www.kpmg.com.my/kpmg/publications/tax/I_M/Chapter5.pdf. Retrieved on 1 March 2011. Mensah, S. (1997). The Money Market : Past Present and the Future. Paper presented at the CDH 10th Anniversary Symposium on 26 November 1997 Miskin, S.F. and Eakins, S.G. (2009). Financial Markets and Institutions. Boston: Pearson Prentice Hall.