The money markets have been active since the early 1800s but have become much more important since 1970, when interest rates rose above historic levels. In fact, the rise in short- term rates, coupled with a regulated ceiling on the rate that banks could pay for deposits, resulted in a rapid outflow of funds from financial institutions in the late 1970s and early 1980s. This outflow in turn caused many banks and savings and loans to fail. The industry regained its health only after massive changes were made to bank regulations with regard to money market interest rates.

a) Define the characteristics of the money markets.

b) Explain TWO (2) reasons why businesses use the money markets.

c) Describe TWO (2) purpose of money markets.