Money Market is a market for trading in short-term loans between banks and financial institutions. Participants in the money market borrow and lend for the short term.
Call Money Market deals in short-term financial assets, which are close substitutes for money and are repayable on demand.
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Call Money Market mainly deals with day-to-day surplus funds of banks. In India, the purpose of Call Loans are to deal in the Bullion Market and Stock Exchanges.
Mumbai, Kolkata, Delhi, Chennai and Ahmedabad host the major Call Money Markets in India.
Call Money helps banks maintain equilibrium in their short-term liquidity positions. Therefore, banks borrow in this market to:
See also: What is Primary Market?
Call Rate is the rate of interest that is paid on Call Money Loans. It is highly volatile because the changes in demand and supply of Call Loans are instantly reflected in Call Rates. Call Rate also helps the RBI access the liquidity situation in the economy.
There are two Call Rates in India:
The eligible participants are free to decide Call Rates in the Call Money Market. Interest payable on Call Money is based on the methodology given by the Fixed Income Money Market and Derivatives Association of India (FIMMDA), which is a voluntary association of Commercial Banks, Financial Institutions and Primary Dealers.
Call Loans are availed through auctions or negotiations on Call Rates. The highest bidder gets the loan. Electronic trading platform called Negotiated Trading System (NDS), deals with Call Money. The Call Money Market is known as the most sensitive segment of the financial system.
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