Wednesday, October 15, 2008

Money market and its structure

Definition of money market
Money market is the centre of dealing in short term monetary assets like bill of exchange, short term govt. securities and other short term loans. The main dealers of money markets are the banks and financial institutions. They get and give loan or purchase and sell short terms bill in this market . This is not fix place but this system in which they deal with each other.
Composition and Structure of Money market
Structure means support on the basis body will stand. So there are following components which support the whole money market.
In the structure of money market, there are two components are included
1st Composition or component – Financial institution
There are two parts of financial institution in money market:-
a) organized sector

In this sector there following dealer who deal short term loans in money market.
I) RBI :-

RBI means reserve bank of India. This is central bank of India. It is issue short term loan when any bank has any need of short term money.
II) Commercial Banks:-
In commercial banks, there are SBI , Nationalize bank , rural banks , private banks which deals in short term loans with each other , one bank can take or give short term loan to each other when they need or extra money , they want to invest in short term govt. security.
III) Co-operative banks:-
The co-operative banks are also take part in money market. In the top dealer in this market is state cooperative bank. In the district level central cooperative bank do dealing in short term loan.
b) Unorganized Sector
In this sector indigenous banks, money lenders deals with each other or with organized sector.
2nd Composition or component – Financial Instruments or papers
1 ) Call money market
Call money market is the market which deals in short term loans. This loan can be given for one hour to one or two days .This call loans is given without any security. The borrower or loan taker will repay the loan at call. So this loan is also called call loan in this market. The rate of this loan is very high.
II) Treasury bill Market
Treasury bills are the bill which is issued by central govt. This bill is sold by RBI on the behalf of Govt. There is dealing of treasury bills in treasury bill market. The main dealer of T.B are the UTI & LIC . This is 90 loan acceptance bill . This bill can be discounted from any other bank.
III) Commercial bill market
a) Promissory Notes: - In this bill, the loan taker give the promise to pay certain amount after certain period.
b) Bill of exchange
Under this bill firms can sell the good. In this bill loan giver order that his amount must be give to him or his ordered person after certain period. This bill can also discounted from bank.

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