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What is the overnight market?

Overnight market

It's the area of the money market with the shortest term loans, in which lenders make funds available only overnight, meaning the borrower has to repay the loan - plus interest - at the start of business the following day.

Where have you heard about the overnight market?

Financial newspapers often report on activity in the overnight market. After Britain's EU referendum in June 2016, for example, overnight funding rates rose as the surprise vote to leave the EU caused market jitters.

What you need to know about the overnight market.

Because the loan period is extremely short, the interest rate charged in the overnight market - known as the overnight rate - is usually the lowest rate at which banks lend money.

Most activity in the overnight market actually takes place in the morning, immediately after the start of business for the day. Financial institutions forecast their clients' liquidity needs that day, and either borrow or lend money on the overnight market, depending on expected outflows.

Banks are the largest participant in the overnight market, though some other big financial institutions also buy and sell on the overnight market to manage cash needs.

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