What is meant by money market? Explain any two instruments used in money market.
What is meant by money market? Explain any two instruments used in money market.
Money market is the market for short-term funds. It provides means for raising funds for meeting short -term needs of cash on one hand and deployment of surplus funds for short period on the other. Instruments in money market are :
(i) Call money: It is a method used by commercial banks to borrow funds from each other to be able to maintain the Cash Reserve Ratio (CRR). It is a short-term finance repayable on demand, with a maturity period of 1 day to 15 days.
The interest paid on call money loans is known as the call rate. It is a highly fluctuating rate that changes from day-to-day and sometimes even from hour-to-hour.
(ii) Commercial bill: It is a bill of exchange used to finance the working capital requirement of a business firm. It is a short-term, unsecures promissory note, negotiable and transferable by endorement and delivary with a fixed maturity period. When the seller makes credit sales, it draws a bill of exchange on the buyer, to pay the amount on certain date. On acceptance by buyer, it becomes a trade bill. This trade bill, when presented to the bank for discounting, and the bank accepts, it is called commercial bill.
Money market is the market for short-term funds. It provides means for raising funds for meeting short -term needs of cash on one hand and deployment of surplus funds for short period on the other. Instruments in money market are :
(i) Call money: It is a method used by commercial banks to borrow funds from each other to be able to maintain the Cash Reserve Ratio (CRR). It is a short-term finance repayable on demand, with a maturity period of 1 day to 15 days.
The interest paid on call money loans is known as the call rate. It is a highly fluctuating rate that changes from day-to-day and sometimes even from hour-to-hour.
(ii) Commercial bill: It is a bill of exchange used to finance the working capital requirement of a business firm. It is a short-term, unsecures promissory note, negotiable and transferable by endorement and delivary with a fixed maturity period. When the seller makes credit sales, it draws a bill of exchange on the buyer, to pay the amount on certain date. On acceptance by buyer, it becomes a trade bill. This trade bill, when presented to the bank for discounting, and the bank accepts, it is called commercial bill.
