Question

Explain the difference between the money market and the loanable funds market

Answer 1

Ans.)(i) In the money market, the financial instruments with high liquidity and short maturities are traded.

On the other hand , the funds ard traded in the loanable funds market in which the major participants are   households and banks.

In the money market , there is no supply and demand curve mechanism , but in the loanable funds market, the supply and demand curves play an important role.

In the loanable funds market, the main source of funds are savings and hoardings by the individuals , whereas in the money market the main source of funds are the financial instruments.