Functions & Features of Call Money Loan

Functions & Features of Call Money Loan

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A short-term loan known as "Call Money" or "Money at Call" must be repaid in full and immediately upon demand by the lender. Call Money does not require the lender to give any advance notice of repayment, in contrast to a term loan, which has a fixed maturity date and payment schedule. Any kind of short-term, interest-bearing loan that the borrower must immediately repay if the lender demands it is called "call money." The Call Money rate, also known as the Call loan rate or the Call rate, is an interest rate that banks can earn on their excess funds through Call Money. It includes money that can be delivered overnight and money that can be delivered quickly for up to 14 days. The primary objective of the Call Money Market is to rebalance participants' and banks' short-term liquidity positions.

Features of a Call Money Loan

• A call money loan is a short-term, interest-bearing loan that is given by one bank to another bank.

• The loan does not require regular principal and interest payments, as opposed to loans with longer terms might.

• The interest rate charged by various financial institutions on a Call loan is known as the call loan rate.

• Representatives use Call Cash as a transient wellspring of subsidizing to keep edge accounts open for their clients who need to use their ventures.

• Lenders and brokerage firms can quickly transfer the funds. Consequently, after cash, it is the second most liquid asset on a balance sheet.

• The broker can issue a margin call in the event that the lending bank calls the funds. This typically leads to the automatic sale of securities in a client's account in order to convert the securities into cash and repay the bank.

• The Call Money rate, which is set by banks, affects the margin rates, which are the interest rates charged on loans used to purchase securities.

Functions of the Call Money Market - The Call Money Market is run by brokers who keep in touch with the city's banks and connect the banks that lend and borrow money.

• The primary function of the Market is to redistribute the pool of banks' daily surplus funds to other banks that are temporarily cash short.

• Banks use Call Money to meet their daily cash requirements. Short-term cash-strapped banks borrow money from other commercial banks for one to fourteen days.

• When a bank borrows money for a single day, it is called call-money. Note that "money" refers to any money borrowed for more than 14 days.

• These transactions are conducted at the rate known as the Call rate. Call Money is used by banks to fill short-term liquidity gaps and fill fund mismatches. The RBI's primary tool for influencing interest rates is this.