Money Market and its Different Sub Markets

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MONEY MARKET AND ITS DIFFERENT SUB MARKETS

The money market is a market for short term, i.e. less than one year. It is a short-term loan or financial assets. It was a market for the lending and borrowing of short-term funds. In the money market we deal not in money but near money assets i.e. the assets which are used as credit instruments are known as “ near money assets”.

The money market is not a place but an activity, the transactions are carried out by telephone, mail, etc. among people who may have never met one another. Almost all big cities have local money markets, say in Bombay there is a Bombay money market, in New York, there is the New York money market and in London there is the London money market.

The following are the general features of a money market :

  • It is market purely for short-term funds or financial assets called near money.
  • It deals with financial assets having a maturity period upto one year only.
  • It deals with only those assets which can be converted into cash readily without loss and with minimum transaction cost.
  • Transactions have to be conducted without the help of brokers.
  • There are some different sub-markets or Components of money market are as follows :-

  1. Call Money Market It is an important sub market of the Indian money market. It is also known as money at call and money at short notice. It is also called inter bank loan market. In this market money is demanded for extremely short period. The duration of such transactions is from few hours to 14 days. It is basically located in the industrial and commercial locations such as Mumbai, Delhi, Calcutta etc. These transactions help stock brokers and dealers to fulfil their financial requirements. Call loans are useful to the commercial banks because these can be converted into cash at any time. They are almost like cash. It is a form of secondary cash reserves for the commercial banks from which they earn some income too.
  2. Collateral Loan Market: It is another specialised sector of the money market. The market for loans secured by stocks and market is geographically most diversified and most loosely organised. The loans are generally advanced by the securities, stock and bonds. The Collateral money is returned to the borrowed when the loan is repaid. Once the borrowed is unable to repay the loan, the collateral becomes the property of the lender. These loans are given for a few months.
  3. Acceptance Market: Acceptance market refers to the market for banker’s acceptance involved in trade transactions. This market deals with banker’s acceptances which may be defined as a draft drawn by a business firm upon a bank and accepted by it. The market where the banker’s acceptances are easily sold and discounted is known as the acceptance market.
  4. Bill Market: It is a market in which short-form papers are bills are bought and sold. The important types of short term papers are:-
    1. Bill of exchange Bills of exchanges are commercial papers. A bill of exchange is a written unconditional order which is signed by the drawer requiring the drawer to pay on demand or at a fixed future time, a definite sum of money.
    2. Treasury money The treasury bills are government papers securities for a short period usually of 91 days duration. The treasury bills are the promissory notes of the government to pay a specified sum after a specific period. These are sold by the central bank on behalf of the government. An important aspect of a treasury bill is that there is no fixing of the rate of interest beforehand. Thus from the above discussion, it is clear that different markets from part of money all these four sub- markets from the money market.

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