A1AppStudio – In the interaction of the money market will be always associated with foreign exchange or often we call forex. That means the money market and foreign exchange is highly connected to each other to be the backbone in the activities of a sell trade buy-wherever we are. In investing, we should also pay attention to the details of the money market and forex.
The interaction between the two is becoming the most crucial and important if the fund amount to big or economic activity at that time was not stable. But first of all we must know in advance the meaning, purpose, and functions of the money market and the foreign currency itself.
What is a Money Market?
The money market is a place between the giver and or also called lenders with the potential consumers. This meeting can be done in face-to-face or directly, but it can also be done through intermediaries or so-called broker. The money market is there because the transaction request or offer to fund and a number of valuable documents with the short-term which is generally under 270 days.
These instruments are usually traded in the form of documents or securities. There are several instruments in the money market, among others :
- Call Money
- Promissory Notes
- Commercial Paper
- Money Market securities (SBPU)
- Bank Indonesia certificates (SBI)
- Banker’s Acceptance
- Treasury Bills
- The money market is also part of the financial system that have a relationship with trading activities, funding short-term up to one year in rupiah and foreign currency, and borrowing and lending. Money markets have a role in monetary policy, financial stability, and smooth operation of payment systems.
Setting the money market can also be done with attention to the regulations of the laws of the state treasury associated with the use of debt instruments of the state as the instrument associated with the monetary operation is usually done through a repurchase agreement transactions (repo). With the setting of the money market is expected to provide a foundation of law in order to be a guideline and gives a legal certainty for Market Participants in the transaction in the Money Market.
The Functions Of Money Market
Because of the urgent need for a fund that has the properties of short-term and should as soon as possible filled with contrivances of the existence of the money market. The money market is the perfect alternative for the company’s non-financial institution, financial institutions, and individuals in meeting the needs of funds in the short term they are. The following is a function of the money market, among others:
- Function Control
Indirectly, money market has a function as a controller monetary exist because the ruler of monetary when they do open market operations. In Indonesia, the open market operations is held by the Central Bank of Indonesia through the money market. Open market operations usually use instruments such as Money Market securities (SBPU) and Bank Indonesia Certificates (SBI).
- The function of an Intermediary or Mediator
The existence of the money market to become the middleman in helping buy-sell transactions of securities with a shorter term. Of its functions to the financial institution or non-financial and also the community can easily do transactions for the sale or purchase of securities according to the needs of those with a short period of time.
In addition, the money market can become an intermediary for foreign investors in order to provide short-term credit to companies in Indonesia. Not only that, the money market can also play a role as a promoter for investors that can offer credit to companies and financial institutions in Indonesia.
- The Function Of Liquidity
In economic activities such as this, the function of liquidity is the main function of the money market. This function has the ability for the company to meet its obligations to repay debt, especially approaching or has passed from the due. Financial instruments such as stocks, bonds, or other instruments can easily be withdrawn through the money market. The goal is that the company can get funds easily through the sale of securities or credit short term through the money market.
- The Function Of The Capital
Capital market actually has an important role also in being an intermediary to raise funds which are securities with short-term of the company or individual to be traded. The money market can also be a source of capital for companies and individuals that want to come and invest in short-term time.
If there are companies that require funding, they may sell securities that they own or get funds from borrowing to other companies with a short time period. With the aim of, capital needs urgent this will quickly be overcome.
What is Foreign Exchange?
Foreign exchange or that is often referred to as foreign currency is a currency that can be easily used and accepted in the world of trading internationally. For domestic transactions, foreign currency, this may not apply as a tool which transactions are legitimate, but it can be used for transactions and finance in the international. United states Dollar, or U.S. Dollar (US$) is the foreign exchange of the most frequently used internationally at this time. One form of foreign exchange including foreign exchange also.
Functions Of Foreign Exchange or foreign Exchange
The following is a function of the foreign exchange or forex :
- Tool Controllers Exchange Rate
Forex is very useful to be a comparison value of currency between countries or who we also know as the exchange rate. As a tool for controlling the rate of exchange against foreign currencies was the usefulness of the exchange.
- Tool Facilitate International Trade
The use of foreign currency it easy to each country perform activities of trade between countries without the constraints of the difference in currency.
- Tool Exchange International
This function, fx have utility to perform a transaction in a foreign country. Aside from that, forex also has usefulness to be a tool to swap goods and services with other countries, for example, import and export.
- International Means Of Payment
Foreign exchange also serves to be a means of international payment, for example if a country owes to other countries, then countries that have debt to pay its debts using the foreign exchange along with the interest.
Types Of Foreign Exchange Transactions
If viewed from a period of time, the forex market can be classified into two kinds of transactions :
- Spot Transactions
Foreign currency transaction is accompanied also obligations of both the parties the buyer and the seller to be able to hand over the currency they have in a maximum of two working days after the contract.
- Forward Transactions
Almost the same as of spot transaction, but the difference is at the time of delivery of the currency of each buyer and seller in the time period of more than two working days after the date of the contract. This means that the handover can be completed in a period of time vary, for example, one day, one week, one month, six months, or one year after the value of the spot.
Here are the types of transactions that are grouped in more detail, among other things :
- Funding : Loans in foreign currency, cash flow needs.
- Investment : Commercial, property, and portfolio investment.
- Commercial : Import-Export traffic of the capital and traffic services.
- Hedging : the Purposes of hedging the risk of changes in exchange rates.
- Individuals : the Tourist and the needs of other individuals.