Money Market

Money market means market where money or it’s equivalent can be traded. It is a wholesale market of short term debt instrument and is synonym of liquidity.

Over-the-counter trading is done in the money market and it is a wholesale process. It is used by the participants as a way of borrowing and lending for the short term. Hence, money market is a market where short term obligations such as treasury bills, call/notice money, certificate of deposits, commercial paper and repos are bought and sold.

The Features of Indian Money Market

The main features of Indian Money Market are as follows:

·        No contact with foreign money market

Indian money market is an insular one with little contract with money market in other countries. There is large movement of capital between money market so there do not attract any foreign funds as developed money markets.

·        Dichotomy

The Indian Money Market is divided between two sectors, namely organised sector and unorganised sector. These is very little cooperation and contact between them.

·        Diversity in more rate of interest:

There exit wide diversity in the money rates of interest in the money market . The different rates of interest get adjusted to the changes in the bank rate.

·        Absence of Acceptance and Discount Houses:

There is almost complete absence of acceptance and discount houses in the Indian money market. This is due to the underdeveloped bill market in India

·        Seasonal Variations

Considering the demands for funds , there are two seasons, the busy seasons and slack season. The busy season covers the period from November to April when agriculture products come into the market.

Composition of money market

Money market consist of a number of sub-markets which collectively constitute the money market. They are ,

·        Call money market: the call money market refers to the market for extremely short period loans. These loans are repayable on demand at the option of either the lender or the borrower. They can also maximise their profit easily by investing their surplus funds in the call market during the period when call rates are high and volatile.

·        Commercial Bills Market or Discount Market:it is a negotiable instrument drawn by the seller on the buyer for the value of goods delivered to him. A commercial bill is a short term, negotiable and self liquidating instrument with low risk.

·        Acceptance Market : it refers to the market where short term genuine trade bills are accepted by financial intermediaries. The market where the bankers acceptance are easily sold and discounted is known as acceptance market.

·        Treasury Bill Market: it is a short-term debt instruments if the central government. Treasury bills are sold through auction process according to a calendar announced by RBI. It is issued at a discount and redeemed at par.

Money market basically refers to a section of the financial market where financial instruments with high liquidity and short-term maturities are traded. Money market has become a component of the financial market for buying and selling of securities of short-term maturities, of one year or less, such as treaty bills and commercial papers.