Question

4. Why do (a) government, and (b) companies, use the money market? //Please give reasonings in detail.

Answer 1

The government sells large numbers of securities in the money markets to support government spending. Over the past several decades, the government has spent more each year than it has received in tax revenues. It makes up the difference by borrowing. Part of what it borrows comes from the money markets.

Businesses both invest and borrow in the money markets. They borrow to meet short-term cash flow needs, often by issuing commercial paper. They invest in all types of money market securities as an alternative to holding idle cash balances.