Dynamics of Short-Term Financial Markets: Interbank and Open Market Analysis

Introduction

The short-term financial markets play a pivotal role in the overall stability and efficiency of the financial system, serving as conduits for liquidity and mechanisms for price discovery. This report aims to explore the dynamics of these markets, specifically focusing on the interbank market and open market operations. The interbank market, where banks lend to and borrow from each other, serves as an essential component for maintaining liquidity among financial institutions. Concurrently, open market operations, conducted by central banks, influence interest rates and overall economic activity through the buying and selling of government securities. This analysis will delve into the mechanisms, interactions, and implications of these markets on broader economic conditions.

Main Body

The interbank market operates primarily on the basis of short-term loans, often with maturities ranging fro