Overnight Market
The overnight market refers to the financial market where short-term borrowing and lending occur, typically for periods of one day. Banks, financial institutions, and other large entities use the overnight market to manage liquidity and meet short-term funding needs. Overnight rates are the interest rates charged for borrowing funds overnight, and these rates are influenced by central bank policies and interbank lending conditions.
Example
A bank borrows funds in the overnight market to meet its short-term liquidity requirements, paying an overnight interest rate set by market conditions.
Key points
• A market for short-term borrowing and lending, typically for one day.
• Used by financial institutions to manage liquidity and meet short-term funding needs.
• Overnight rates are influenced by central bank policies and interbank lending conditions.
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