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Financing of Working Capital and the Money Markets - Essay Example
Author : paucekemmy
Pages 5 (1255 words)
In this short essay, the author presents an analysis of the money markets as source of short term finances for the working capital of organizations. The author starts with the money market instruments in Croatia and then presents the long term finance options for working capital as well…
The most marketable money market security available in Croatia are the "Government Treasury Bills" that are issued with the maturity deadline of 91, 182 and 364 days [http://www.mfin.hr/en/public-debt]. The second form of money market instrument used in Croatia is the "Certificate of Deposit" that is issued by commercial banks and available through brokers. Certificate of Deposit is a kind of time deposit offered by banks to corporations, local & state governments, and foreign investors that competes with other instruments of the money markets. It is the mechanism by which banks consolidate surplus funds from entities and lend them to other entities in need of short term funds whereby they make money by charging higher interest rates to borrowers than what is offered to the depositors. Hence banks function as financial intermediaries that are primarily interested to channel money to the customers paying highest interest rates and manage the risk of defaults effectively. They compete in the money markets primarily by virtue of their services and interest rates (McKinney Jr. 1967. pp71-73).
In Croatia, the certificate of de ...