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August 01, 2014

Indian Money Market - Concept, Objects and Features

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Financial markets in a country comprise of money market and capital market. Money market deals in short term funds and the capital market in long term funds. Financial markets are part of the financial system of a country. Financial systems comprise of institutions of the financial markets as well as other financial intermediaries. In addition to this, the market consists of institutions that regulate their functioning. Both money market and capital markets deal in various types of instruments. Categorization of market as money markets and capital markets should not give us the impression that they are mutually exclusive. The two markets are closely related and there is a certain amount of overlapping between transactions they undertake.

Concept of Money Market

Money market is a market for short term funds. Short term funds are funds which can be used overnight to one-year duration. By using the word market we do not mean a physically located place, where buyers and sellers meet face to face in close proximity. Market refers to the institutional structures which facilitate transactions between those who demand / need short term funds, and those who supply / provide them. These are the buyers and sellers of short-term funds. Thus the 'Money Market' is an Money market is the collective to the various firms and institutions that deal in the various grades of near money. Transactions in the money market between the borrowers, lenders and middlemen takes place through telephone, telegraph, mail, agents, in addition to face transactions". Although money markets are not confined to locations, they are very often refereed to in relation to prominent places for identification for eg : London money market, new York Money Market, Bombay Money Market and so on. London and New York Money Markets attract funds from all over the world. Bombay money market is the centre for short-term funds not only for Bombay, but the whole India.
arrangement that brings about a direct or an indirect contact between the lender rand the borrower. Short term funds include cash and near money assets. Near money assets are those which are semi-liquid assets which can be converted into cash without loss of time or value.  To quote Crowther, "

Objects of the Money Market

The basic objectives of money markets are
  1. To provide institutional frame work to employ short-term surplus funds.
  2. To facilitate flow of funds to where there is a deficit.
  3. To enable the Central bank to influence and regulate liquidity in the economy through money market interventions. Central Banks everywhere exercise varying degrees of control over institutions of the money market. 

Features of the Money Market

The following are the general features of a money market
  1. It is a market for short-term funds or financial assets called near money.
  2. It deals with financial assets which have a maturity period upto one year only.
  3. It deals with only those assets which can be converted into cash readily without loss and minimum transaction cost.
  4. Transactions are conducted without the help of others. 
  5. It is not a single homogenous market. It consists of several sub markets, each dealing within a particular type of financing. Eg. Call money market, Acceptance market, Bill market etc.
  6. Transactions in the market are through oral communication, supplemented through documents and written communication. 
  7. Institutions of the money market generally are, the Central Banks, Commercial Banks, Discount houses and Acceptance houses, Commercial banks play a key role in the money market of any country.

1 comment:

  1. Plz post RBI assistant exam quantitative aptitude tests


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