Components of Organised Money Market

Components of Organised Money Market

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The Indian money market's organized sector can further be broken down into the following submarkets:

A. Call Money Market - The call money market is the most crucial part of the organized money market. It bargains in call advances or call cash conceded for one day. Since the members in the call currency market are generally banks, it is additionally called interbank call currency market. The call money market's demand side is made up of banks that temporarily lack funds, while the supply side is made up of banks that temporarily have more funds.

B. Market for Treasury Bills - The short-term liabilities of the Indian government—91, 182, and 364 days—are traded on the Treasury Bill market. In theory, these bills are issued to meet the government's short-term financial needs. However, in reality, they are now the government's primary source of funding. Long-term bonds are created from a portion of Treasury Bills each year. There are two types of Treasury bills: regular and ad hoc. State & semi-government departments as well as foreign central banks 444accept ad hoc Treasury Bills. They are not marketable and are not sold to banks or the general public. The regular Treasury Bills are freely marketable and sold to banks and the general public. The Reserve Bank of India sells both ad hoc and regular Treasury Bills on behalf of the Central Government. In comparison to the markets for Treasury Bills in the United States and the United Kingdom, India's market is less developed. In the United States and the United Kingdom, Treasury Bills are the most important money market instrument.

C. The Market for Commercial Bills - The Market for Commercial Bills deals with business-issued bills. The typical maturity period for these bills is three months. A business Bill is a guarantee to pay a predefined sum in a predetermined period by the purchaser of merchandise to the dealer of the products. The bill is drawn up by the seller, who sold his goods on credit, and sent to the buyer for acceptance. The bill becomes a marketable instrument when the buyer or his bank writes "accepted" on it. The bill is then sent to the seller. Now, the seller can get the bill discounted and sell it to his bank for cash. The bank can either rediscount the bills from the Reserved Bank or sell them to other banks during financial crises. The bill market in India is not as developed as it is in advanced nations like the United Kingdom. There are no specialized institutions like acceptance and discount houses, especially those that deal in acceptance and discounting business.

D. The Market for Collateral Loans - The collateral loan market focuses on loans backed by security, also known as collateral loans. In the Indian guarantee advance market, the business banks give momentary credits against government protections, offers and debentures of the public authority, and so on. E. The Markets for Commercial Paper and Certificates of Deposit: The markets for commercial papers and certificates of deposit are known as the CD and CP markets, respectively. The Reserve Bank of India introduced these two instruments—CD and CP—in March 1989 with the intention of broadening the variety of money market instruments and providing investors with greater flexibility in the use of their short-term surplus funds.