Measures to Improve. Also, it does not allow regional or sectoral scarcities of funds to emerge. Like 182-Day Treasury bills, 364 Day Bills can be held by commercial banks for meeting Statutory Ratio. They seldom lend their surplus due to the bureaucratic mindset. This market is co-terminus with the entire economy. But, unfortunately, the Indian money market is inadequately developed, loosely organised and suffers from many weaknesses. They will be further freely transferable by endorsement and delivery. on all topics related to accounting and finance. The entire money market in India can be divided into two parts. (ii) Hundies used in the money market should be standardised and written in the uniform manner in order to develop an all-India money market. The organized market com­prises the RBI and banks. We have interpreted the term money market more broadly to include within its folds also the notional money market of monetary theory. To enable the central bank to influence and regulate liquidity in the economy. (ii) The existence of indigenous bankers is the major hurdle in the way of integrating the money market. Accordingly, financial markets, institutions, and instruments can be classified in any one or more of these ways. (c) For the central bank the treasury bills are the main instrument of open market operations. Discount and Finance House of India (PFHI): The Working Group of Money Market, in its Report submitted in 1987, recommended, among other things, that a Finance House should be set up to deal in short-term money market instruments. A well-developed money market is a necessary pre-condition for the effective implementation of monetary policy. Money itself is acquired in the normal process of selling goods, services, and assets in all markets, as money is the common medium of exchange (in all monetised transactions). For some time past, with increased double cropping of cultivated land, hefty increases in the output of wheat (a major rabi crop) and autumn rice, growth of perennial industries, and a higher proportion of bank credit going to manufacturing industries, the previous seasonal ups and downs in the demand for funds have largely lost their importance. The RBI itself serves as the lender of last resort to the market. It involves... Types of Money Market Instruments. (ii) The government trading in various instruments, like 364 Day treasury Bills, commercial bills and commercial paper, has increased considerably. Since the participants in the call money market are mostly banks, it is also called interbank call money market. (iii) Inadequate development of call money market is another difficulty in controlling the money market. (ii) Rediscounting market should be developed with a view to facilitating the emergence of genuine bill culture in the country. Welcome to EconomicsDiscussion.net! The organized modern sector of Indian money market comprises: (b) The State Bank of India and its associate banks; (c) The Indian joint stock commercial banks (scheduled and non-scheduled) of which 20 scheduled banks have been nationalised; (d) The exchange banks which mainly finance Indian foreign trade; (f) Other special institutions, such as, Industrial Development Bank of India, State Finance Corporations, National Bank for Agriculture and Rural Development, Export-Import Bank, etc., which operate in the money market indirectly through banks; and. The asset it deals in is money; the demanders are the holders of money (the public) and the suppliers are the government, the RBI and banks. 4. So, the demand for bank credit to traders and sugar manufacturers goes up. Both general and life insurance companies are usual lenders in the money market. But, these treasury bills are not popular with the non-bank financial institutions, corporations, and individuals mainly because of absence of a developed treasury bill market. This works as an important limitation to the working of monetary policy in India. Considering the size, methods of operations, and dealings with the RBI and commercial banks, only state and central, cooperative banks should be included in the organised sector. Thus, business and finance firms can tide over the mismatches of cash receipts and cash expenditures by purchasing (or selling) the shortfall (or surplus) of funds in the money market. It is not a place like the stock market but an activity and all the trading is done through telephones. There are many schemes known as Money Market Mutual Fund Schemes or Liquid Schemes. It is called organised because its part is systematically coordinated by the RBI. The whole co-operative credit system is linked with the RBI and is dependent on it for funds. There is no special or separate market for money like the ones we have for bills, bonds, or equity shares. (vii) Variations in the interest rates should be reduced. Wasteful competition exists not only between the organised and unorganised sectors, but also among the members of the two sectors. Banks will neither be allowed to grant loans against CDs, nor can they buy their own CDs. Disclaimer Copyright, Share Your Knowledge The sectoral classification identifies credit arrangements for various sectors of the economy: agriculture, manufacturing industry, trade and others. (iii) Non-bank financial institutions such as the LIC, the GIC and subsidiaries, the UTI also operate in this market, but only indirectly through banks, and not directly. The money market is a market where money and highly liquid marketable securities are bought and sold. I. Dichotomy between Organised and Unorganised Sectors: The most important defect of the Indian money market is its division into two sectors- (a) the organised sector and (b) the unorganised sector. Undeveloped Nature of Indian Money Market: An insight into the various defects and inadequacies of the Indian money market reveals that as compared to the advanced international money markets like the London Money Market, the New York Money Market, etc., Indian money market is still an undeveloped money market. Treasury bills are of two types: ad hoc and regular. Besides the Reserve Bank, some treasury bills are held by commercial banks, state government and semi-government bodies. Money market provides a non-inflationary way to finance government deficits and allow governments to implement monetary policy through open market operations and provide a market based reference point for setting interest rate. It has made a number of recommendations for activating and developing the Indian money market. (iii) There is no uniformity in the interest rates which vary considerably among different financial institutions as well as centres. Money market is a centre where short-term funds are supplied and demanded. The cooperative societies at the local level are loosely linked with it. They also lend in the CBLO market their temporary surplus, when the interest rate rules very high in the market. For example, there is little contact between the money markets in the bigger cities, like, Bombay, Madras, and Calcutta and those in smaller towns. securities and other short term loans. Both of these components comprise several constituents. Following are the objectives of money market: 1. The variety of bills eligible for use has also been enlarged. The former are markets in short-term funds; the latter in long-term funds. There are many other small players like non-banking finance companies, primary dealers, provident funds and pension funds. As a matter of policy, the aim of the DFHI is to increase the volume of turnover rather than to becomes the repository of money market instruments. The initial paid up capital of DFHI is Rs. 7. (ix) Since July 1987, the Credit Authorisation Scheme (CAS) has been liberalised to allow for greater access to credit to meet genuine demand in production sectors without the prior sanction of the Reserve Bank. Money market operations focus on a particular area, which serves a region or an area. But in business parlance the term money market is almost always used in the sense of short-term credit market. Economics, India, Financial Markets, Money Market. They are the lender to the banks when they buy the Certificate of Deposit issued by the banks. The structure of financial markets can be studied from different angles, namely, functional, institutional, or sectoral. Indian money market generally suffers from the shortage of capital funds. The institutional classification tells us whether the financial institutions are organized on commercial or cooperative principles and whether they belong to the organized or unorganized sector. The banks with temporary deficit of funds form the demand side and the banks with temporary excess of funds form the supply side of the call money market. (vi) The call money market plays a vital role in removing the day-to-day fluctuations in the reserve position of the individual banks and improving the functioning of the banking system in the country. The company issuing CP will have to obtain every six months a specified rating from an agency approved by the Reserve Bank. The main features of Indian call money market are as follows: (i) Call money market provides the institutional arrangement for making the temporary surplus of some banks available to other banks which are temporary in short of funds. Non-bank financial institu­tions such as the LIC, the GIC and subsidiaries, the UTI also operate in this market, but only indirectly through banks and not directly. The relation between various segments of the money market is not cordial; they are loosely connected with each other and generally follow separatist tendencies. 3. There are two main sources of supply of short-term funds in the Indian money market: The unorganised sector comprises numerous indigenous bankers and village money lenders. No bills are involved in this type of credit. The money market is a market where money and highly liquid marketable securities are bought and sold. Almost every concern in the financial system, be it a financial institution, business firm, a corporation or a government body, has a recurring problem of liquidity management, mainly because the timing of the expenditures rarely synchronize with that of the receipts. DFHI has been providing secondary market for money instruments and Government of India Treasury Bills. The main dealers of money markets are the banks and financial institutions. (v) In order to develop a sound money market, the Reserve Bank of Indian has taken measures to amalgamate and merge banks into a few strong banks and given encouragement to the expansion of banking facilities in the country. The interest rates also differ in various centres like Bombay, Calcutta, etc. The surpluses in some centres or sectors get immediately transferred to others in short supply. A large number of borrowers and lenders make up the money market. (v) Cooperative credit institutions occupy the intermediary position between organised and unorganised parts of the Indian money market.