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I am reading about money markets and there is the following section:

"Money market is the short term financial market of an economy. In this market, money is traded between individuals or groups who are either cash surplus or cash scarce. Trading is done on a rate known as discount rate which is determined by the market and guided by the availability of and demand for the cash in the day to day trading. The repo rate of time works as the guiding rate for the current discount rate. Borrowing may or may not be supported by collaterals."

I find the entire passage too difficult to comprehend, is there a simpler explanation?

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  • 1
    Are you wanting the section reworded or is there something specific that you don't understand?
    – Nosjack
    Apr 19 at 16:38
  • I prefer the entire section reworded in a very informal language so that a layman can understand. Apr 19 at 16:41
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Rephrased the quote in the spirit of Up-Goer Five, with the help of this useful editor:

Money market is the place where you can let someone use your money, or use someone's money, for a short time. In this place, money is taken and given away by people or groups who either have money they don't need today or need some more money for a few days.

When you give someone your money, they will give you back a little bit more money. How much smaller this little bit is than the whole money you gave, is known as discount rate. It is decided every day by all people in that place when they see how much money is there to be given and how much money people want to take. If there are more people who need money than there are people who can give money, those who take money that day will have to return even more money on top of what they take.

The added share of money you get from someone for using your money, for every day they use it, is almost the same as the share of money that the largest money house in the area takes from smaller money houses when they want to use its money for one day.

Sometimes when someone takes other people money to use for a few days, they have to leave behind something important or dear, to make sure they will return the money.

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  • +1 for XKCD reference
    – 0xFEE1DEAD
    Apr 19 at 22:26
  • @0xFEE1DEAD that's a bad reason to upvote
    – user253751
    Apr 20 at 9:25
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Money market is the short term financial market of an economy.

Think of it like a checking account for banks, corporations, etc.

In this market, money is traded between individuals or groups who are either cash surplus or cash scarce.

These individuals/groups either have too much cash on hand, or not enough

Trading is done on a rate known as discount rate which is determined by the market and guided by the availability of and demand for the cash in the day to day trading.

For example, the Fed Funds rate

The repo rate of time works as the guiding rate for the current discount rate. Borrowing may or may not be supported by collaterals."

In a Repo or Repurchase Agreement, party A will lend money to party B at the repo rate. In exchange, party B gives party A collateral, usually treasury notes/bonds, in case they can't pay back the loan.

If the loan is not supported by collateral, it means that it is not secured by any assets such as treasurys, trade receivables, a car (auto loan), a house (mortgage), etc.

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