Money Markets

There are two kinds of markets where borrowing and lending of money takes place between fund scarce and fund surplus individuals and groups. The markets which cater to the need of short term funds are called Money Markets while the markets that cater to the need of long term funds are called Capital Markets.

Thus, money markets is that segment of financial markets where borrowing and lending of the short-term funds takes place. The maturity of the money market instruments is one day to one year.  In our country, Money Markets are regulated by both RBI and SEBI. Money markets are also sometimes called discount markets.

How Money markets are different from capital markets?

While money markets are markets for short term fund needs; capital markets are markets for long term funds, debts, equity, shares etc.

Segments of money markets in India

Money Market in India is divided into unorganized sector and organized sector. The Unorganized market is old Indigenous market which includes indigenous bankers, money lenders etc.  Organized market includes Governments (Central and State), Discount and Finance House of India (DFHI), Mutual Funds, Corporate, Commercial / Cooperative Banks, Public Sector Undertakings (PSUs), Insurance Companies and Financial Institutions and Non-Banking Financial Companies (NBFCs).  Organized Money Market is regulated by RBI as well as SEBI.

Various instruments of Money Markets

The organized money market in India is not a single market but is a conglomeration of markets of various instruments, which are called Sub-markets of Money Market. These include Call Money / Notice  Money / Term Money Market, Treasury Bills, Commercial Bills, Certificates of Deposits, Commercial Bills, Commercial Papers, Money Market Mutual Funds and Repo / Reverse Repo.  The most active segment of the money market is “Overnight Call market” or repo.

Call Money, Notice Money and Term Money Markets

Call Money, Notice Money and Term Money markets are sub-markets of the Indian Money Market. These refer to the markets for very short term funds. Call Money refers to the borrowing or lending of funds for 1 day. Notice Money refers to the borrowing and lending of funds for 2-14 days. Term money refers to borrowing and lending of funds for a period of more than 14 days.

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