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”.
II. PLAYERS OF MONEY
MARKET :-
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.
III. FUNCTIONS OF MONEY MARKET :-
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
funds.
4) It helps in allocation of short term funds through
inter-bank transactions and money market
Instruments.
5) It also provides funds in non-inflationary way to
the government to meet
its deficits.
6) It facilitates economic development.
STRUCTURE OF INDIAN MONEY
MARKET
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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