How To Buy Money
It sounds confusing… and it is. There are experts who understand this perfectly. For us normal folks who are not experts in the money market it remains a confusing place. How can you buy money?
We will start out with what it means to buy money. Obviously, you will want to know how to buy money next. The article will also discuss the various instruments of the money market.
What does it mean to buy money?
Before we address this question, let us understand what money is. King Hammurabi, the King of Babylon (1792-1750BC) was among the earliest kings to be attributed with the creating of money and laws that go with it.
If you look at banknote, you will find, in most countries, a statement from the issuing country, promising the bearer an equivalent of the currency. It goes something like:
“I promise to pay the bearer of this note a sum equal to ….”
Did you know that it is actually a contract, a debt? A contract between the person, who holds the bill, and the issuing authority of the bill. There are many institutions that issue such contracts. Governments and banks are the most famous examples.
So if I was to purchase a contract that has value in a similar manner, I would be purchasing money.
Where can I buy money?
You would buy money in the money market.
It is time to introduce two terms that you will hear often in the money market:
- Security: This is another term for the form of contract you hold similar to the bill (money).
- Fixed- income: This is a term used in conjunction with securities to describe the money market. It stresses the fact that the value of the security is known.
The word money market is a special term and it deals in “fixed-income securities”. We know that a contract or security is actually a form of debt. Money market instruments are forms of debt that are very liquid. Liquid means that they can be turned into the currency of your choice very easily and quickly. The debt duration is typically less than one year.
You can also buy money which will mature in the long term. Bonds are a typical example.
Money market instruments are very desirable. Normally you would invest in money markets through banks or brokers who are authorized.
What are the popular forms of money?
The typical forms of money market instruments are:
- Treasury bills: These are short term securities sold governments e.g. the US – Treasury
- Money Market Mutual Funds: These are mutual funds aimed to invest only in the short term money markets and securities
- Certificates of Deposit: These are normally issued by banks
- Commercial Papers: Typical examples are letter of credits issued by merchant banks
You can directly buy various currencies. The buying and selling of currencies is called Forex Trading.
Summary
Money is a really speaking an instrument of debt. There are many such instruments of debt. Your banknotes are the typical example. Trading of banknotes, aka currencies, is called Forex Trading. You can buy and sell money market instruments through banks and brokers. Please refer to www.t1fx.com to know more about Forex Trading and money markets.
