Call Money Market in India

2283 Words Jan 26th, 2011 10 Pages
A Financial Market can be defined as the market in which financial assets are created or transferred. As against a real transaction that involves exchange of money for real goods or services, a financial transaction involves creation or transfer of a financial asset. Financial Assets or Financial Instruments represents a claim to the payment of a sum of money sometime in the future and /or periodic payment in the form of interest or dividend.
The primary function of a financial market is to facilitate the transfer of funds from surplus sectors (lenders) to deficit sectors (borrowers). A financial market consists of investors or buyers, sellers, dealers and brokers and does not refer to a physical location. The participants in the market
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Some deposits are repayable instantly on demand. However, the banks cannot instantly take the money back from their borrowers. Banks keep some cash ready for meeting any demand from their depositors but sometimes, the demand could be higher than the cash in hand.
During the course of the day, after taking care of all their needs, some banks may have surplus cash in hand and some may have a deficit. The bank having a deficit will borrow money overnight or for any period extending up to 14 days from bank having a surplus. The borrowing bank has to pay interest on the borrowed money. Thus call money usually serves the role of equilibrating the short-term liquidity position of banks.

• The call money market crosses international lines, with funding opportunities located in a number of countries around the world. Because of the inclusion of international banking institutions, the role of the brokerage firm becomes vital to the individual investor. Brokers will be aware of applicable banking laws, and how those laws could impact the transaction. This knowledge regarding participants in the call money market allows the firm to pick and choose among possible avenues for funding with a level of efficiency that would be difficult for the individual.

• Call money is also required by banks to meet their CRR requirements. They borrow money from other banks and non bank entities to cover any shortages of cash on a “Reporting

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