No Need to Borrow from Banks: The existence of a developed money market removes the necessity of borrowing by the commercial banks from the central bank. However, capital market depends upon the nature of and the conditions in the money market. 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. Non-bank Financial Intermediaries: Besides the commercial banks, there are non-bank financial intermediaries which lend short-term funds to borrowers in the money market. Indian Economy Sixty one ed. They accept bills drawn on merchants whose financial standing is not known in order to make the bills negotiable in the London Money Market.
The primary function of discount houses is to discount bills on behalf of other. They are issued by the Secretary to the Treasury in England and are payable at the Bank of England. Lastly, a well-developed money market will have close links with the leading money markets of the world and will be sensitive to the developments in these foreign markets. More Information about Commercial Papers is. Long-term requirements of industries are not met by money market instruments. At the local level, there are primary credit societies and urban cooperative banks. Financial assets of long-term maturity is very much the domain of the investors of the capital market where these long- term securities are traded.
Finally, the term is occasionally met in the literature of Monetary Theory where it may refer simply to the market in loanable funds in the most general and undifferentiated sense. Money Market Mutual Funds: In 1992 setting up of Money Market Mutual Funds was announced to bring it within in the reach of individuals. Though the terms money market and capital market are used interchangeably, they differ in a number of ways. Commercial Paper is issued at discount and redeemed at par. In case of goods sold on credit, the buyer is liable to make the payment on a specific date in future. A reduction in the repo rate will help banks to get money at a cheaper rate.
London Money Market, New York Money Market etc. Containing a promise to pay the amount stated to the bearers of the instrument. Currently interest rates are determined by the working of market forces except for a few regulations. The same is the procedure with that of the buyer, who purchases the securities and other instruments and promises to sell them back to the seller at the same time. Institutions of the Money Market: The various financial institutions which deal in short term loans in the money market are its members. Promissory notes and bills of exchange are known as trade bills.
The Indian money market can be dividend into two sectors i. They have assured yield and negligible risk of default. In London it embraces the group includes the Inter-bank, Inter-company and Local Authority Markets and the market in Sterling Certificates of deposit. In totality it can be said that Indian Money Market is relatively under developed. Such loans are usually granted by the commercial banks to stock exchange dealers and brokers.
On the other hand, if the government were to issue paper money or borrow from the central bank. 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. Though, historically, money market has developed as a result of industrial and commercial progress, it also has important role to play in the process of industrialization and economic development of a country. An interbank call money market is a short-term money market which allows for large financial institutions, such as banks, mutual funds and corporations, to borrow and lend money at. It is used as time draft to finance imports, exports. These serve not only specific areas or countries but several countries in the world. These laws enjoy a high degree of liquidity.
In India, the establishment of Discount and Finance House of India Ltd. It was in 1989 that the certificate of deposit was first brought into the Indian money market. As and when implemented this will widen the scope of money market. Equilibrium between Demand and Supply of Funds: The money market brings equilibrium between the demand and supply of loanable funds. Vaghul the present chairman of Industrial Credit and Investment Corporation of India Ltd.
The volume of business is very large and generally transactions are settled on a daily basis. There are number of factors responsible for it in addition to the above discussed characteristics. 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. First Published: March 17, 2015 Last Updated:June 28, 2017 Call Money, Notice Money and Term Money markets are sub-markets of the Indian Money Market. The term for these instruments can also vary between 30 and 180 days.
The primary purpose of capital market is to direct the flow of savings into the long-term investments. Commercial Bills Commercial bills market is basically a market of instruments similar to Bill of Exchange. They are issued at discount and are paid at par. Treasury Bill T — Bills The bill market is a sub-market of the money market in India. . The party borrowing the security is known as a buyer, and the lender is the seller.
Essentially it refers to a market of short-term funds. A well-developed money market contributes to an effective implementation of monetary policy. In the words of Crowther, money market is the name given to the various firms and institutions that deal with various grade of money. Money market is a mechanism through which a large part of the financial transactions of a particular country or of the world are cleared. A conservative estimate places this amount at between Rs. The treasury bills sold to the public and banks are called regular treasury bills.