Banks often use the interbank call money market to meet reserve requirements. These high return activities are invariably financed by the black money. Money market meets the working capital requirements of industry, trade and commerce. Fourthly, the Indian money market is dominated by the unorganised sector. The loans in the call money market are very short, usually lasting no longer than a week and are often used to help banks meet. The maturity periods of this instrument are from 15 days to 1 year.
The issuing company has to bear all expenses like dealers, fees, agency fees, etc. Secondly, the term is used to denote any market in highly liquid assets which is supported by an identifiable and active set of operators. In the recent times 2002—03, 2003—04 , the has been issuing only 91-day and 364-day treasury bills. The reasons for this situation are historical, like preference for cash to bills etc. The price with which treasury bills are issued comes separate from that of the face value, and the face value is achieved upon maturity. Help to Central Bank: Though the central bank can function and influence the banking system in the absence of a money market, the existence of a developed money market smoothens the functioning and increases the efficiency of the central bank.
To develop a secondary market in Government securities, it started buying and selling securities to a limited extent in 1992. The Urban Debt Relief Act has given relief to the urban poor. Call money loans typically range from one to fourteen days. The cooperative societies at the local level are loosely linked with it. The money market can obtain funds from the central banks either by borrowing or through sales of securities.
The treasury bills sold to the public and banks are called regular treasury bills. In 1988, the discount and finance house was set up for discounting brought by commercial banks. The main objective of the commercial banks is to earn income from its reserves as well as maintain liquidity to meet the uncertain cash demand of the depositors. In totality it can be said that Indian Money Market is relatively under developed. Article shared by : Main instruments of money market in India are: 1. The return on commercial papers is always higher than that of T-bills.
The Government has been raising nearly Rs. The merchant bankers accept bills drawn on domestic and foreign traders whose financial standing is not known. Helps in Financial Mobility: By facilitating the transfer for funds from one sector to another, the money market helps in financial mobility. In India, the establishment of Discount and Finance House of India Ltd. The indigenous money market has itself become a lawless market. There is also the foreign bill of exchange which becomes due for payment from the date of acceptance.
The bank can rediscount the bills and can meet the short-term liquidity requirements. The interbank money markets are sources of short terms funds for banks and participants in the financial markets. Promissory notes and bills of exchange are known as trade bills. The secondary market was ill- developed and lacked liquidity and depth. These serve not only specific areas or countries but several countries in the world. Functions of Money Markets Due to short maturity term, the instruments of money market are liquid and can be converted to cash easily and thus are able to address the need of the short term surplus fund of the lenders and short term borrowing requirements of the borrowers.
Money Market Mutual Funds: In 1992 setting up of Money Market Mutual Funds was announced to bring it within in the reach of individuals. Loans typically have a duration of one week or less. Helps in Monetary Policy: A well developed money market helps in the successful implementation of the monetary policies of the central bank. Development of New Market Instruments : The government has consistently tried to introduce new short-term investment instruments. The organised sector is mainly composed of the commercial banks, cooperative banks and discount houses, acceptance houses and land mortgage banks.
Unlike the capital market which has seen considerable innovation and change during the last ten years or so, the money market in India until 1988 remained narrow and was circumscribed by tight regulation over interest rates and participants in each of its segments. All these institutions which comprise the money market do not work in isolation but are interdependent and interrelated with each other. Discount Houses and Bill Brokers: In developed money markets, private companies operate discount houses. The liquidity is high in the case of commercial invoices. Financing Trade: Money Market plays crucial role in financing both internal as well as international trade. The bank reduced the ceiling rate on bank advances and on inter-bank call and short-notice money. Disparity in Interest Rates: There have been too many interest rates prevailing in the market at the same time like borrowings rates of government, the lending rates of commercial banks, the rates of co-operative banks and rates of financial institutions.