Money Market is a market for overnight to short-term funds ( i.e. up to one year) and for short-term money and financial assets that are close substitutes for money.
CLOSE SUBSTITUTE for money means those financial assets which can be quickly converted into cash (money) with minimum transaction cost and without loss in value.
The money market refers to that segment of system/markets that enable the raising of short-term funds for meeting the temporary shortage of cash and obligations and the temporary deployment of excess funds for earning returns.
FEATURES OF MONEY MARKET
The common features of the money market are:
- Short term duration (up to one year)
- Institutional source of working capital financing.
- Large numbers of participants.
- Wholesale market (large volume of funds
- Same-day settlement of transactions
- Scope for innovative dealings.
- A large number of interrelated sub-markets i.e. call market, commercial bills market, T-bill market, CP market, CD market, and so on.
OBJECTIVES OF MONEY MARKET
- The common objectives of the money market are:
- It is an equilibrium mechanism to balance the short-term surplus and deficits.
- It is the focal point of the central bank (RBI) intervention for influencing liquidity in the economy.
- It is reasonable access to the users of ST funds to meet their requirements at a realistic/reasonable price/cost or to temporarily deploy their excess funds for earning returns.
RBI AND MONEY MARKET
The RBI is the nerve Centre of the Money market and the main regulator of the banking system. It influences the availability and cost of funds by varying liquidity in the market through various instruments like Repurchase Agreements/ Repo Transaction/Reverse Repo Transaction.