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SPEEDY Railway Book (English)

Money Market in India - Important Key Points



The Money Market is the section of financial market in which short term funds and borrowed and lent. It deals in funds and financial instruments having a maturity period of one day to one year. It is different from stock market. The lending money market institutions are –

  • PSUs [Public Sector Undertakings]
  • Private Sector Organizations
  • The Government or Quasi government owned Non-corporate entities
  • Government of India and other sovereign bodies
  • Banks and Development Financial Institutions
  • Non Banking Financial Companies
  • It also provides funds in non-inflationary way to the government to meet its deficits.
  • It caters to the short-term financial needs of the economy.
  • It helps in allocation of short term funds through inter-bank transactions and money market instruments.         
  • It helps the RBI in effective implementation of monetary policy.
  • It facilitates economic development.
Structure/ Components:
Organized Market:
  1. Call or Notice Money Market It is an amount borrowed or lent on demand for a very short period.
  2. Treasury Bills Market – These are the lowest risk category instruments for the short terms.
  3. Commercial Papers – These are negotiable short term unsecured promissory notes with fixed maturities, issued by well- rated organizations.
  4. Commercial Bills – These type bills of exchange are interchangeable instruments drawn by the seller or drawer of the goods on the buyer or drawer of the good for the value of the goods delivered.
  5. Certificates of Deposits – it is issued at a discount to the face value, the discount rate being negotiable between the issuer and the investor.
  6. Money Market Mutual Funds (MMMFs) – These are allowed to issue units to corporate enterprises and others on par with other mutual funds.
  7. Repo Market – Repo market means selling a security under an agreement to repurchase it at a predetermined date and rate. Repo is a repurchase agreement.
  8. Discount and Finance House of India (DFHI) – It is playing an important role in developing an active secondary market in Money Market Instruments.
Unorganized Market:
  1. Money Lenders (MLs) – They are those whose primary business is money lending. Money lending in India is very popular both in urban and rural areas.
  2. Indigenous Banker – Indigenous bankers are individuals or private companies who receive deposits and give loans and thereby operate as banks.
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