Notice Money Market and Capital Market

Notice Money Market and Capital Market

Tags:      Gig Economy     Economy     WTO     WTO Public Stockholding     MSP     Economic Growth     Masala Bond     Environmental Performance Index     Forecast of Economic Growth     Functions of the Finance Commission

The notice money market is a subset of the Indian money market that caters to short-term borrowing and lending of funds for a period of two to fourteen days. It serves as a platform for financial institutions and banks to lend and borrow funds at competitive rates. While it is often seen as a distinct entity, it is important to note that the notice money market and capital market have several connections amongst them as both of them strengthen the country’s financial system. The capital market includes all individuals and institutions that trade in long-term securities like stocks and bonds.

A notice money market example will make the concept more clear. Suppose Bank A has a surplus of Rs. 50 Crores and wants to earn interest on the same. It approaches a broker in the notice money market and lends the funds for a period of 10 days at an interest rate of 4.5%. The broker connects Bank A with Bank B, which is in need of funds for 10 days. Bank B borrows Rs. 50 Crores at an interest rate of 4.5% and repays the same to Bank A at the end of the 10-day period.

There are many benefits of notice money market as it primarily enables lenders to earn interest on their surplus funds that otherwise, may have been idle. This helps them optimize their resources and increase their profitability. Secondly, it enables borrowers to obtain funds at competitive rates compared to traditional bank loans. Lastly, it promotes efficient allocation of funds in the economy, as surplus funds are channelized to those in need of funds. It enables participants to meet their short-term financing requirements and enables banks to comply with the reserve requirements mandated by the Reserve Bank of India (RBI).

The Notice Money Market data is there for everyone to see and understand that the market has witnessed significant growth in recent years. That is also a reason for the government authorities to place its trust on this mechanism. Hence, notice money market serves as a vital platform for financial institutions and banks to lend and borrow funds for a short period. It also provides several benefits to participants, including efficient allocation of funds, reduced demand-supply gap, and optimal utilization of resources.