Money Market:-
The Reserve Bank of India describes money market as “the centre for dealings, mainly of a short-term character, in monetary assets, and it meets the short term requirements of borrowers and provides liquidity or cash to lenders.”
Functions of Money Market
A well-organised and developed money market can help a country to achieve economic growth and stability. It performs a diversity of functions in the banking structure of the economy. They are:
(a) Money market provides outlets to commercial banks, non-banking financial
concerns, business corporations and other investors for their short-term funds. It enables them to use their excess reserves in profitable investment.
(b) Money market also provides short-term funds to businessmen, industrialists, traders etc. to meet their day-to-day requirements of working capital. Money market plays a crucial role in financing both internal as well as international trade.
(c) Money market provides short-term funds not only to private businessmen but also to government and its agencies.
(d) Money market enables businessmen, with temporary surplus funds, to invest them for a short period.
(e) Money market serves as a medium through which the central bank of the country exercises control on the creation of credit.
(f) Money market is also of great help to the government.
Composition of the Money Market
1. Call Money Market: It is a market for short-period loans. Bill brokers and dealers in stock exchange require financial accommodation for very short periods. Money may be lent for periods not exceeding seven days. Sometimes money is lent only overnight. These loans are called call loans or call money as the banks recall these loans at very short notice. The banks prefer this kind of investment for two reasons. Firstly, call loans can be treated almost like cash and they form the second line of defence for the banks after cash. Secondly unlike cash, the call loans earn some income, in the form of interest, for the banks. The commercial banks are the lenders and the bill brokers and dealers in stock exchange are the borrowers in the call money market. The call money market is an important section of the money market.
2. Collateral Loan Market: When loans are offered against collateral securities like stocks and bonds, they are called ‘collateral loans’ and the market is known as the collateral loan market.
3. Acceptance Market: It refers to the market for bankers acceptances which arise out of trade-both inland and foreign. When goods are sold to anyone on credit, the buyer accepts a bill. Such a bill cannot be discounted anywhere easily. The banker adds his credit to the bill by accepting it on behalf of his customer who has purchased the goods. Such bills can be discounted anywhere.
4. Bill Market or Discount Market: It refers to the market where short-dated bills and other paper is discounted. Before the First World War the most important paper discounted in the London money market was the commercial bill which was used to finance both inland and foreign trade.
Money Market is a short-term credit market. It is the centre in which short-term funds are borrowed and lent. It consists of borrowers and lenders of short-term funds. The borrowers are generally merchants, traders, brokers, manufacturers, speculators and Government. The lenders are commercial banks, insurance companies, finance companies and the central bank. The money market brings together the lenders and the borrowers. It does not deal in cash or money. It deals in trade bills, promissory notes and government papers or bills, which are drawn for short-periods.
The Reserve Bank of India describes money market as “the centre for dealings, mainly of a short-term character, in monetary assets, and it meets the short term requirements of borrowers and provides liquidity or cash to lenders.”
Functions of Money Market
A well-organised and developed money market can help a country to achieve economic growth and stability. It performs a diversity of functions in the banking structure of the economy. They are:
(a) Money market provides outlets to commercial banks, non-banking financial
concerns, business corporations and other investors for their short-term funds. It enables them to use their excess reserves in profitable investment.
(b) Money market also provides short-term funds to businessmen, industrialists, traders etc. to meet their day-to-day requirements of working capital. Money market plays a crucial role in financing both internal as well as international trade.
(c) Money market provides short-term funds not only to private businessmen but also to government and its agencies.
(d) Money market enables businessmen, with temporary surplus funds, to invest them for a short period.
(e) Money market serves as a medium through which the central bank of the country exercises control on the creation of credit.
(f) Money market is also of great help to the government.
Composition of the Money Market
1. Call Money Market: It is a market for short-period loans. Bill brokers and dealers in stock exchange require financial accommodation for very short periods. Money may be lent for periods not exceeding seven days. Sometimes money is lent only overnight. These loans are called call loans or call money as the banks recall these loans at very short notice. The banks prefer this kind of investment for two reasons. Firstly, call loans can be treated almost like cash and they form the second line of defence for the banks after cash. Secondly unlike cash, the call loans earn some income, in the form of interest, for the banks. The commercial banks are the lenders and the bill brokers and dealers in stock exchange are the borrowers in the call money market. The call money market is an important section of the money market.
2. Collateral Loan Market: When loans are offered against collateral securities like stocks and bonds, they are called ‘collateral loans’ and the market is known as the collateral loan market.
3. Acceptance Market: It refers to the market for bankers acceptances which arise out of trade-both inland and foreign. When goods are sold to anyone on credit, the buyer accepts a bill. Such a bill cannot be discounted anywhere easily. The banker adds his credit to the bill by accepting it on behalf of his customer who has purchased the goods. Such bills can be discounted anywhere.
4. Bill Market or Discount Market: It refers to the market where short-dated bills and other paper is discounted. Before the First World War the most important paper discounted in the London money market was the commercial bill which was used to finance both inland and foreign trade.
Post a Comment