Challenges of Money Market Mkt in India

Since the Central Bank has the exclusive right to issue money in the economy, it can have extensive influence on the determination of interest rate in financial markets and in the economy as a whole, by adjusting the interest rate on short-term loans to financial institutions. Central Bank interest rates on these loans therefore have the most immediate impact on other short-term interest rates in the money market. By influencing interest rates, monetary policy then has an effect on the savings and expenditure decisions of individuals and corporate.

Legislative institutions depended with the mission of oversight of the financial framework are ill-suited to address macroeconomic concerns. For instance, Federal Reserve is a reason for more prominent flimsiness and instability than more noteworthy request and certainty. Cutting or bringing interest rates up in with a perspective to pumping a lot of liquidity into the budgetary framework or, in actuality, limiting cash supply keeps market components from setting the right cost of cash and assigning capital proficiently. However, it is not in any case responsible to people in general, as it is chosen in a roundabout way and responsible to open everywhere through a long chain of appointment. Money related markets can

When understanding the balance of goods and services that are traded by a country, it is reliant in a negative manner on the imports needed to produce the products. Also, the flow of money in the international market is depending on interest rates from all nations and can be positively or negatively affected dependent on how high or low these rates are by nation. When investors are looking to increase their financial position, country’s offering higher

This essay will explain and illustrates the key mechanism behind the money multiplier and explore how monetary authorities can influence its size and affect the money supply in the economy. Firstly, an introduction on money measure will be presented. Secondly, the mechanism behind money multiplier will be presented by using equations to explain the cyclical changes in the multiple factor. Thirdly, the examination of the money multiplier in the current economic climate will be put forward. Fourthly, an explanation on the open market operation, discount window and the reserve ratio will be presented to convey the influence in the size of money supply. Finally, this essay will conclude with an overview of the essay.

As a matter of first importance, lets begin off by expressing what the money market is comprised of and this is comprised of cash and bond, at the end of the day the conduct of central banks and private parts monetary establishments. There are both positives and negatives for individuals holding their cash in both of the two. For instance, in the private segment you put in your cash into securities in this way there is a plausibility of profiting through premium however then again, this is seen as a danger if the rate falls and you’ll a percentage loose your money. Additionally, because of in the event that you hold cash in a settled rate

Banks are the most significant players in the Indian financial market. They are the biggest purveyors of credit, and they also attract most of the savings from the population. Dominated by public sector, the banking industry has so far acted as an efficient partner in the growth and the development of the country. Driven by the socialist ideologies and the welfare state concept, public sector banks have long been the supporters of agriculture and other priority sectors. They act as crucial channels of the government in its efforts to ensure equitable economic development.

One of the functions of the financial institutions is Commercial Banks. Commercial banks will accept deposits and provide very good security and make it suitable for their customers. This is just a normal role for the bank to give their customers money safe so that their customers don’t have to physically keep their belonging in their home or on them (APB, 2001). With having commercial banks there is no need to keep large amount of money in hand because the banks can handle it such as online banking, checks, debit card or credit card.

Interest rate is considered as one of the main parameters to control the economic conditions of any country. Interest rate is the key variable for time value of money, which causes a greater shift in money markets and capital markets. This study is basically carried out for the capital market or stock market.

21. Banerjee Amalesh and Singh S.K. (2002), Banking and Financial Sector Reforms in India, Deep and Deep Publications Pvt. Ltd., New Delhi-p.265 (Report of K. Madahav Rao Committee (1979)

In India, it is believed that most of the gold is held by people in rural areas and in many cases this is the only asset they have in their possession though in small quantity by which they can easily raise cash from moneylenders due to unavailability of banking facilities. Opting for gold loan can be broadly classified into status based, demographic based and age based segments. After analyzing the market, we came up flow chart explaining the various channels along with a

The second explanatory variable in our study (M2) was the monthly growth rate of the M2 money supply. This variable may be viewed as a measure of the change in national monetary liquidity. Money supply growth also influences the stock market through its impact on general business conditions and economic activity. The third flow related variable, monthly changes in the federal funds rate (FF), provides information on the Federal Reserve’s efforts to stimulate or dampen the future growth of financial liquidity. Both fixed-income and equity markets pay close attention to Federal Reserve efforts to encourage or restrict economic growth through interest rate changes.

Apart from the reasons mentioned, the money market as well as capital market witnessed the presence of private moneylenders, landlords etc. They have acted as bankers for centuries and have amassed major wealth from people of India that adversely affected capital formation. The need for a better financial institution and credit infrastructure was thus felt necessary by the planning commission when the five-year plans were initiated.

The Indian rupee has become extremely unstable in the economy. Like Brazil, India is facing 6.1% inflation while its growth rate is sitting at 4.4% (Badkar, 2013). In order to curb the inflation, India banks have started buying oil in US dollars, while they sell it Rupees (Badkar, 2013). This allows them to make money off the sell rather than lose money from conversion. The country is still facing serious interest rates, as high as 8% (Monaghan, 2014).

The major determinants of money supply being the size of monetary base and the components that determines the money multipliers, such as income level, deposit rate, various interest rate, liquidity preferences of the people, the theory suggests that the NRB’s policy has been a steady growth money supply which is reflected in the publication, the Periodic Economic Planning, of the planning commission and the Economic Review published by NRB. According to Thapa (1997), the highest growth was recorded in 1960, and the lowest growth was recorded in 1971. In 1960, the M1 and M2 monetary aggregates grew by 40.9% and reserve money (monetary base) grew by 48.8%. In 1971, the growth of M1 was 3.9% while reserve money declined by almost 1%.

The present study is associated with the utilization of secondary data on Money Supply and Price Level for the economy of Nepal. The data of concerned variables are taken from various issues of Economic Bulletin of Nepal Rastra Bank. Quarterly data on money supply and price level ranging from 1976Q1 to 2012Q2, a total of 143 periods have been used in the present study. The present study has employed the data sets of money supply and price level transformed in logarithmic form to minimize the problem of heteroscedasticity.