In which market do banks typically trade short-term debt instruments?

Banks typically trade short-term debt instruments in the short-term money market. This market is specifically designed for the trading of financial instruments that have maturities of one year or less. Common instruments traded in this market include treasury bills, commercial paper, and certificates of deposit.

The short-term money market plays a crucial role in providing liquidity to financial institutions, allowing them to manage their short-term funding needs. By engaging in transactions within this market, banks can lend and borrow funds at competitive interest rates on a short-term basis, helping them to smoothly manage their cash flows and comply with regulatory requirements.

The capital market, by contrast, deals with longer-term financial instruments, making it unsuitable for short-term debt instruments. The foreign exchange market focuses on the trading of currencies and does not involve trading in debt instruments. The commodity market is concerned with the buying and selling of physical goods, such as agricultural products and metals, rather than financial assets like debt instruments.