{"id":6378,"date":"2023-01-23T15:40:22","date_gmt":"2023-01-23T15:40:22","guid":{"rendered":"https:\/\/commerceiets.com\/?p=6378"},"modified":"2023-01-23T15:40:22","modified_gmt":"2023-01-23T15:40:22","slug":"components-of-money-market","status":"publish","type":"post","link":"https:\/\/commerceiets.com\/components-of-money-market\/","title":{"rendered":"Components of Money Market"},"content":{"rendered":"\n

SUB MARKETS \/ COMPONENTS OF MONEY MARKET<\/strong><\/h2>\n\n\n\n

In view of the rapid changes on account of financial deregulation and global financial markets integration, central banks in several countries have striven to develop and deepen the money markets by enlarging the scope of instruments and participants so as to improve the transmission channels of monetary policy. The entire money market in India can be divided into two parts. <\/p>\n\n\n\n

They are organized money market and the unorganized money market. The unorganized money market can also be known as an unauthorized money market. Both of these components comprise several constituents. The following chart will help you in understanding the organizational structure of the Indian money market:<\/p>\n\n\n\n

\"Components
Components of Money Market<\/figcaption><\/figure>\n\n\n\n

Organized Sector:<\/strong> <\/p>\n\n\n\n

The RBI is the apex institution which controls and monitors all the organizations in the organized sector. The commercial banks can operate as lenders and operators. The Fls (Financial Institutions) like IDBI (Industrial Development Bank of India), ICICI (Industrial Credit and Investment Corporation of India Limited) and others operate as lenders. <\/p>\n\n\n\n

The organized sector of Indian money market is fairly developed and organized, but it is not comparable to the money markets of developed countries like USA, UK and Japan. The organized money market is composed of various components\/ instruments that are highly liquid in nature. Main constituents\/components of Organized Money Market:<\/p>\n\n\n\n

\"Components
Components of Money Market<\/figcaption><\/figure>\n\n\n\n

Call Money Market:<\/strong><\/p>\n\n\n\n

Call money market refers to the market for very short period. Bill brokers and dealers in stock exchange usually borrow money at call from the commercial banks. These loans are given for a very short period not exceeding seven days under any circumstances, but more often from day-to-day or for overnight only i.e. 24 hours. There is no demand of collateral securities against call money. <\/p>\n\n\n\n

They possess high liquidity, the borrowers are required to pay the loan as and when asked for, i.e. at a very short notice. It is on account of this reason that these loans are called \u2018call money\u2019 or call loans. Thus, call money market is an important component of the money market.<\/p>\n\n\n\n

The investment of funds in the call market meets the need of liquidity but not that of profitability because the rate of interest on call loans is very low and changes several times during the courses of the day.<\/p>\n\n\n\n

Call loans are useful to the commercial banks because these can be converted into cash at any time. They are almost like cash. It is a form of secondary cash reserves for the commercial banks from which they earn some income too.<\/p>\n\n\n\n

It is basically located in the industrial and commercial locations such as Mumbai, Delhi, Calcutta, etc.<\/p>\n\n\n\n

These transactions help stock brokers and dealers to fulfill their financial requirements. The rate at which money is made available is called as a call rate and it is highly volatile. Thus rate is fixed by the market forces such as the demand for and supply of money. Commercial banks, co- operative banks, Discount and Finance House of India Ltd. (DFHI), Securities trading corporation of India (STCI) participate as both lenders and borrowers and Life Insurance Corporation of India (LIC), Unit Trust of India (UTI), National Bank for Agriculture and Rural Development (NABARD) can participate only as lenders. Under call money market, funds are transacted on an over-night. <\/p>\n\n\n\n

Generally, banks rely on call money market where they raise funds for a single day. The RBI intervenes in the call money market because it is highly sensitive and it is the indicator of liquidity position in the organized money market.<\/p>\n\n\n\n

Collateral Loan Market:<\/strong> <\/p>\n\n\n\n

It is an important sector of money market. The loans are generally advanced by the commercial banks to various private parties in the market. These collateral loans are backed by the securities, stocks and bonds. Securities are returned to the borrower when loan is repaid. Once the borrower is unable to repay the loan, the collateral becomes the property of the lender. These loans are given for few months. The borrowers are generally the dealers in stocks and shares. But even smaller commercial banks can borrow collateral loans from bigger banks. Collateral loan market includes the following:<\/p>\n\n\n\n

I. Market for Financial Guarantees<\/p>\n\n\n\n