It is centered in New York, but since it is primarily a telephone market it is easily accessible from all parts of the nation as well as from foreign financial centers. The money market encompasses a group of short-term credit market instruments, futures market instruments, and the Federal Reserve's discount window. The major participants in the money market are commercial banks, governments, corporations, government-sponsored enterprises, money market mutual funds, futures market exchanges, brokers and dealers, and the Federal Reserve. Banks play three important roles in the money market. First, they borrow in the money market to fund their loan portfolios and to acquire funds to satisfy noninterest-bearing reserve requirements at Federal Reserve Banks.
Banks are the major participants in the market for federal funds.
The funds market efficiently distributes reserves throughout the banking system. The borrowing and lending of these reserves takes place at a competitively determined interest rate known as the federal funds rate. Federal Reserve discount window Banks and other depository institutions can also borrow on a short-term basis at the Federal Reserve discount window and pay a rate of interest set by the Federal Reserve called the discount rate. The decision to borrow at the discount window depends on the relation of the discount rate to the federal funds rate, as well as on the administrative arrangements surrounding the use of the window. A large denomination CD is a certificate issued by a bank as evidence that a certain amount of money has been deposited for a period of time.