Money Market - Banking Awareness for Bank Exams 2014

MONEY MARKET:
A segment of the financial market in which financial instruments with high liquidity and very short maturities are traded. The money market is used by participants as a means for borrowing and lending in the short term, from several days to just under a year. Money market securities consist of negotiable certificates of deposit (CDs), bankers acceptances, Treasury bills, commercial paper, municipal notes, federal funds and repurchase agreements.

The money market is used by a wide array of participants, from a company raising money by selling commercial paper into the market to an investor purchasing CDs as a safe place to park money in the short term. The money market is typically seen as a safe place to put money due the highly liquid nature of the securities and short maturities, but there are risks in the market that any investor needs to be aware of including the risk of default on securities such as commercial paper.

The main features of Indian Money Market are as follows:

1. Dichotomy:
The Indian Money market is divided between two sectors, namely organised sector and unorganised sector. There is very little cooperation and contact between them.
Consequently the rate of interest in both the markets varies widely.

2. Seasonal Variations:
Considering the demand for funds, there are two seasons, the busy season and slack season. The busy season covers the period from November to April when agricultural products come into the market.
There is great demand for funds during this period. The slack season covers the period between May and October. The funds begin to be repaid and there is substantial fall in the demand for funds.

3. Inter-Call Money Market:
The core of the Indian money market is the inter-bank call money market. It is the most sensitive sector of the money market.

4. Predominant Place of Government Securities:
In the Indian money market, the predominant place is enjoyed by government and semi government securities.

5. Absence of Acceptance and Discount Houses:
There is almost complete absence of acceptance and discount houses in the Indian money market. This is due to the underdeveloped bill market in India.

6. Isolation from Foreign Money Market:
The Indian money market is isolated from foreign markets. There is hardly any movement of funds between Indian Money Market and foreign markets.

7. Variety of Financial Institutions:
The Indian market is characterised by the presence of a large number of financial institutions such as non-banking financial intermediaries, cooperative banks, Export-Import banks. They cater to the financial needs of different sectors.