Banking Awareness: Money Market and Functions of Money Market for UPSC, SSC and Bank Tests

Money Market

The cluster of financial institutions that deal in short-term securities and loans, gold and foreign exchange are termed as money market. Money has a time value and therefore, the use of it, is bought and sold against payment f interest. Short-term money is bought and sold in the money market is bought and sold in the money market and long-term money in the capital market.

Functions of Money Market

• It provides an equilibrating mechanism for demand and supply of short-term funds. 
• It enables borrowers and lenders of short-term funds to fulfil their borrowing and investment requirements at an efficient market clearing price.
• It provides an avenue for Central Bank intervention in influencing both quantum and cost of liquidity in the financial system, thereby transmitting Monetary Policy impulses to the real economy.

Efficient functioning of the money market is important for the effectiveness of Monetary Policy. The Reserve Bank carries out regulation and development of money Market instruments such as call /notice /term money market, repo market, certificate of deposit commercial paper and Collateralised Borrowing and Lending Obligations (CBLO). The Call /notice /term money market operations are transacted/report on the Negotiated Dealing System Call (NDS Call) platform.

Types of Money Market:

In Indian money market, Reserve Bank of India plays the central role, as it regulates and controls the money market.

1 ) Organised Sector:

It comprises of all the public sector banks and foreign exchange banks except Reserve Bank of India.

2 ) Un-organised Sector:

It comprises of domestic bankers money lenders. They don't have been given any financial validity or certification by any financial institution. They are commonly found in underdeveloped areas.