structure of money market

Structure of Indian Money Markets Organized Sector: This sector comprises of the governments, the RBI, the other commercial banks, rural banks, and even... Unorganized Sector: These are the indigenous banks and the local money lenders and hundis etc. To provide parking place for temporary employment of surplus fund. Type in your mobile phone web browser for free access anytime, from any place.The content is designed specifically for cell phones and mobile devices. For example, even today, the State Bank of Indian and other commercial banks look down upon each other as rivals. The financial institutions dealing in monetary assets may be spread over a wide geographical area. (vi) The call money market plays a vital role in removing the day-to-day fluctuations in the reserve position of the individual banks and improving the functioning of the banking system in the country. Therefore, it is not affected directly by (say) the policy of monetary restraint of the economy. For example, there is little contact between the money markets in the bigger cities, like, Bombay, Madras, and Calcutta and those in smaller towns. The government bonds, corporate bonds and bonds issued by banks are examples of money market instruments, where the instrument has a ready market like the equity shares of a listed company. At the top there are state co-operative banks (co-operation being a state subject). (vi) Total deregulation of money market interest rates with effect from May 1, 1989 is a significant step taken by RBI towards the activation of money market. (iv) 182 Day Treasury Bills have been introduced in 1987. (v) Cooperative credit institutions occupy the intermediary position between organised and unorganised parts of the Indian money market. securities and other short term loans. Similarly, competition exists between the Indian commercial banks and foreign banks. The RBI has no control over the quality and composition of credit in this market either. To provide facility to overcome short term deficits. It is not a place like the stock market but an activity and all the trading is done through telephones. CDs will be issued at discount to face value and the discount rate will be freely determined. Privacy Policy3. It is called organised because its part is systematically coordinated by the RBI. Since the participants in the call money market are mostly banks, it is also called interbank call money market. Thus, the Reserve Bank of India has succeeded to a great extent in improving the Indian money market and removing some of its serious defects. The Structure of Banking System in India – Explained! Even though there are various centers of money market such as Mumbai, Calcutta, Chennai, etc., they are not separate independent markets but are inter-linked and interrelated. Thus, business and finance firms can tide over the mismatches of cash receipts and cash expenditures by purchasing (or selling) the shortfall (or surplus) of funds in the money market. But since 1947 the situation is rapidly changing with the fast expansion of banking in the country and the relative shrinkage of the unorganized sector of the money market. Indian money market generally suffers from the shortage of capital funds. It is not a place like the stock market but an activity and all the trading is done through telephones. Due to the efforts of the Reserve Bank, there is now much more coordination in the organised sector than that in the unorganised sector or that between organised and unorganised sectors. Treasury bills are of two types: ad hoc and regular. Money itself is acquired in the normal process of selling goods, services, and assets in all markets, as money is the common medium of exchange (in all monetised transactions). As the apex agency in the Indian money market, the DFHI has been playing an important role ever since its inception. It is a market purely for short-term funds. The organized market com­prises the RBI and banks. Privacy Policy 8. For the success of monetary and credit policy, the character of the money market is important. While on one hand the money market helps in shifting vast sums of money between banks, on the other hand, it provides a means by which the surplus of funds of the cash rich corporations and other institutions can be used (at a cost) by banks, corporations and other institutions which need short-term money. Their maturity ranges from three months to six months. It enables governments, banks, and other large institutions to sell short-term securities to fund their short-term cash flow The company can raise money through CP upto a maximum amount equivalent to 20% of its working capital limits. (ii) In order to attract additional funds into rediscount market, the ceiling on the bill rediscounting rate has been raised from 11.5% to 12:5%. Therefore, they seriously restrict the Reserve Bank’s control over the money market. (v) In August 1989, the government remitted the duty on usance bills. The seller, who has sold his goods on credit draws the bill and sends it to the buyer for acceptance. Discount and Finance House of India (PFHI): The Working Group of Money Market, in its Report submitted in 1987, recommended, among other things, that a Finance House should be set up to deal in short-term money market instruments. After the buyer or his bank writes the word ‘accepted’ on the bill, it becomes a marketable instrument and is sent to the seller. There is little contact, coordination and cooperation between the two sectors. One of the important features of the money market is honor of commitment and creditworthiness. On the contrary, the Indian Treasury bill market has no dealers expect the Reserve Bank of India. Answers of Accounting Objective Questions, Difference between formal and informal organisation. The entire money market in India can be divided into two parts. The Reserve Bank of Indian has taken various measures to improve the existing defects and to develop a sound money market in the country. To help the government to implement its monetary policy through open market operation. Banks will neither be allowed to grant loans against CDs, nor can they buy their own CDs. Non-bank financial institu­tions such as the LIC, the GIC and subsidiaries, the UTI also operate in this market, but only indirectly through banks and not directly. E. Certificate of Deposit and Commercial Paper Markets: Certificate of Deposit (CD) and Commercial Paper (CP) markets deal with certificates of deposit and commercial papers. For reasons of size, methods of operation and dealings with the RBI and commercial banks, only state and central co-operative banks need be counted into the organized money market; the rest (co-operative credit societies at local level) are only loosely linked with it. The cooperative societies at the local level are loosely linked with it. Funds have also to be moved between regions and from one place to another according to demand. In simple words, the money market is an avenue for borrowing and lending for the short-term. The banks do not maintain fixed ratios between their cash reserves and deposits and the Reserve Bank has to undertake large open market operations to influence the policy of the banks. (viii) Indigenous banks are somewhat better organised because they enjoy rediscount facilities from the commercial banks which, in turn, have link with the RBI.

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