Basic Understanding about Money Market

We are living in a competitive world. Money is a very important factor in every person’s life as we need enough money for our existence. Here, I am going to share some details regarding money market. As the term indicates, the money market is a place where many institutions give their money as a short-term loan for those who are in need of money. The lender determines the value of money by determining the demand and supply of the money and the determined value of money are known as the rate of interest.

The money market transactions are done through various sub-markets. The commonly used sub-market instruments are

Call Money

Call money is a short-term loan borrowed or lend for one day. It is also known as overnight money. The lender gives a cheque or pays order to the borrower. The rate of interest is based on the availability of the funds. In India, some limited organizations are only permitted to borrow the funds through call money.

Treasury bills

It is an instrument in which the reserve bank of India issue bills for meeting the short-term financial needs of central government. The treasury bills are generally matured in a period of 14days, 91days, 183 days, and 364 days. The minimum amount which can be transferred through this instrument is one lakh. One of the main features of this bill is that any commercial institutions or common people can invest in this but because of low-interest rate usually, no one invests in it.

Commercial paper

It is a promissory note but as compared to other money market instruments it is unsafe. Due to its insecure nature itis issued by reputed institutions only. These commercial papers are mainly issued for obtaining working capital. The period of time is up to twelve months. The borrower can buy at least five lakhs through commercial paper. The company can sell their commercial papers directly to their purchasers or it can be done with the help of any agency.

Certificate of deposit

The certificate of deposit generally issued by any commercial banks and other financial institutions to the people, companies, and corporations. The fund is transferred after receiving authorization. The minimum amount certificate of deposit is five lakhs.

Commercial Bill Market

A bill market is necessary for the development of the money market i.e., a bull market is a place in which the short-term loans are purchased or sold.

 

What are the main features of the Money Market?

  • Faster transactions: The money market transactions are very fast because most of the transactions are done through telephone and the documentation processes are done later. A very good example is transaction using Crypto Code.
  • Liquidity: The money market has excess liquidity so it always provides a ready market for market instruments.
  • Appropriate approach: It always uses appropriate user-friendly approaches for the short-term loan facility.
  • Dichotomy: the money market is mainly divided into two sectors-organized and unorganized.
  • Many sub-markets: Money markets have a lot of sub-market. It acts as a money market instruments which help the transaction process.