28 March 2014

Money Market in India

A money market is a market for borrowing and lending of short-term funds. It deals in funds and financial instruments having a maturity period of one day to one year. It is a mechanism through which short-term funds are loaned or borrowed and through which a large part of financial transactions of a particular country or of the world are cleared.
It is different from stock market. It is not a single market but a collection of markets for several instruments like call money market, Commercial bill market etc. The Reserve Bank of India is the most important constituent of Indian money market. Thus RBI describes money market as “the centre for dealings, mainly of a short-term character, in monetary assets, it meets the short-term requirements of borrowers and provides liquidity or cash to lenders”.
In money market transactions of large amount and high volume take place. It is dominated by small number of large players. In money market the players are :-Government, RBI, DFHI (Discount and finance House of India) Banks, Mutual Funds, Corporate Investors, Provident Funds, PSUs (Public Sector Undertakings), NBFCs (Non-Banking Finance Companies) etc.
The role andlevel of participation by each type of player differs from that of others.
1) It caters to the short-term financial needs of the economy.
2) It helps the RBI in effective implementation of monetary policy.
3) It provides mechanism to achieve equilibrium between demand and supply of short-term
4) It helps in allocation of short term funds through inter-bank transactions and money market
5) It also provides funds in non-inflationary way to the government to meet its deficits.    
6) It facilitates economic development.

I.       Organised Sector Of Money Market :-
Organised Money Market is not a single market, it consist of number of markets. The most important feature of money market instrument is that it is liquid. It is characterised by high degree of safety of principal. 

II.      Unorganised Sector Of Money Market :-
The economy on one hand performs through organised sector and on other hand in rural areas there is continuance of unorganised, informal and indigenous sector. The unorganised money market mostly finances short-term financial needs of farmers and small businessmen. 

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