Call Money
The money market primarily facilitates lending and borrowing of funds between banks and entities like Primary Dealers (PDs). Banks and PDs borrow and lend overnight or for the short period to meet their short term mismatches in fund positions. This borrowing and lending is on unsecured basis. Call Money is the borrowing or lending of funds for 1 day. To put it in short, In the call money market the day-to-day surplus funds (mostly of banks) are traded.
When there is an Asset liability mismatch, Banks resort to these type of loans, and comply with the statutory CRR ( Cash Reserve ratio) and SLR ( Statutory Liquidity Ratio) requirements and to meet the sudden demand of funds. RBI, banks, primary dealers etc are the participants of the call money market. Demand and supply of liquidity affect the call money rate. A tight liquidity condition leads to a rise in call money rate and vice versa.
Call money rate is the rate at which short term funds are borrowed and lent in the money market.
The money market is a market for short-term financial assets that are close substitutes of money. The most important feature of a money market instrument is that it is liquid and can be turned into money quickly at low cost and provides an avenue for equilibrating the short-term surplus funds of lenders and the requirements of borrowers.
The loans are of short-term duration varying from 1 to 14 days, are traded in call money market. As mentioned earlier, the money that is lent for one day in this market is known as Call Money, and if it exceeds one day (but less than 15 days) it is referred to as Notice Money. If the loan period extends beyond 14 days then it is called Term Money.
20-09-2020