Money Market – Meaning & Importance

Introduction

The Money Market is the market for Short-Term funds (Up to 1 year). It deals in assets that are close substitutes for money (Near Money).

1. Features

1. Short Term: Maturity from 1 day to 365 days.
2. Wholesale Market: Transaction volumes are huge (Crores). Retail investors rarely participate directly.
3. Liquidity: Highly liquid.
4. No Physical Location: Trading happens over telephone/electronic systems between banks.

2. Participants

1. RBI: The regulator and dominant player (Manages liquidity).
2. Commercial Banks: Major borrowers and lenders.
3. Corporate Houses: Issuers of Commercial Paper.
4. Government: Borrows via Treasury Bills.

3. Importance

1. Working Capital: Helps industry meet short-term cash needs.
2. Monetary Policy: RBI controls inflation by influencing money market rates (Repo/Reverse Repo).
3. Safe Parking: Place for banks/corporates to park surplus cash for short periods.

4. Key Instruments (Overview)

• Call Money.
• Treasury Bills.
• Commercial Paper.
• Certificate of Deposit.

Summary

• Period: < 1 Year.
• Nature: Wholesale, Over-the-counter (OTC).
• Core Role: Liquidity Management.

Quiz Time! 🎯

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