These seasonal fluctuations in the rates of interest create uncertainty in the money market. 3. Privacy Policy It means besides these two characteristics, there are some other characteristics which are as under. Further, the commercial banks are intimately related to the central bank, so they provide a better link between the central bank and other components of money supply and borrowers, brokers, discount houses and acceptance houses. Share Your Word File 5. Share Your PDF File
Huge Collection of Essays, Research Papers and Articles on Business Management shared by visitors and users like you. It is because of this reason that it is called guardian of the money market. Disclaimer The treasury bill market deals in treasury bills to meet the short-term financial needs of the Central Government.
These are the organised components of money market since the functions and activities of these institutions are systematically coordinated by the RBI and the Government. Most important short-term instruments with different degrees […] Because of the absence of an effective control of the.
But their behaviour virtually remains unchecked. Sen in his book ‘Central Banking in Undeveloped Money Market’ rightly calls them “the nucleolus of the whole money market”. What is the Importance of A Developed Money Market. The two important money market centres in India are in Kolkata and Mumbai. Once integration is made, the RBI’s control, regulation, directive and guidance will touch every facet of the money market. Privacy Policy3. Particularly after nationalisation, banking system in India has gained enough strength. A developed money market has the most developed and sensitive sub markets.
Disclaimer Copyright, Share Your Knowledge An undeveloped money market is a stumbling block in the way of monetary authority. Different components of money market have been shown in a treelike diagram (Fig. Sen has pointed out that in Australia, both these conditions exist but Australian money market is not well-developed. It is said that a steady supply of trade bills freely negotiable in both sectors would ensure link or integration between them. Finally, Indian money market is characterised by the seasonal stringency of money supply during the busy season when demand for money shoots high.
2. Sen, “The larger the number of sub-markets, the broader and more developed will be the structure of the money market.” But besides it, the sub-markets must be integrated with each other. In India we find that the presence of indigenous bankers obstructs the adoption of an effective monetary policy or controls.
There exists both organised and unorganised components of money market. Terms of Service 7. Obviously, in such a set up, RBI’s credit control instruments cannot be applied on them even if they deserve punishment on the ground of national interest. We known that for a well-developed money market the two conditions discussed above are necessary but not sufficient. Consequently, we notice the contraction of businesses of unorganised sector of the money market.
The Indian money market is peculiar.
Essays, Research Papers and Articles on Business Management, Indian Money Market: Features, Defects and Reforms, Notes on Money Market: Meaning, Functions and Benefits, Difference between Capital Market and Money Market, Attitude: Meaning, Definition, Concept, Components, Types and Functions. Most important short-term instruments with different degrees of maturity that are used in the money market often are: inter-bank call money, short-notice deposits, Treasury Bills of 91 days and 364 days, commercial bills, certificate of deposits and commercial paper.
It means other member banks can borrow from the central bank during emergency. The money market is a group of various sub-markets, each dealing in loans of various maturities. In the absence of a well-coordinated banking system and other constituents of money market, the central bank may not be able to achieve its desired goals. One has enough reason to be sceptic regarding the RBI’s control and monitoring over the organised commercial banking sector. Money market deals are not carried out in money / cash, but other instruments like trade bills, government papers, promissory notes, etc. The characteristics are: 1. 8.1). Image Guidelines 4. That is, the money market will have a developed sub- markets such as bill market, call money market, acceptance market, discount market, etc.
At present (January 2009) the number of non- scheduled banks is 30. Commercial banks not included in the Second Schedule of the RBI Act, 1934, are called non- scheduled banks. Such rate is market-determined—influenced by demand for and supply of short-term funds. Our mission is to liberate knowledge. It was introduced in January 1990. There are many other factors which are responsible for the money market to be a developed one. Traders get money by discounting such bills in a commercial bank so as to avail financial accommodation. There will be markets for call loans, the collateral loans, acceptances, foreign exchange, bills of exchange and commercial and treasury bills. Hence the necessity of integration. This website includes study notes, research papers, essays, articles and other allied information submitted by visitors like YOU. Availability of Ample Resources 6.
Truly speaking, commercial banks are in the shackles of regulatory processes of the RBI. If the near-money assets or credit instruments are not available in sufficient number, the money market cannot be developed. It is now one of the disciplined sectors of the money market. Therefore, a well developed money market will have a highly organised and developed commercial banking system. TOS4. It controls the entire money market operations by making the availability of funds depending upon the economic cycles. A pertinent point is that it is not a pre-requisite of a developed money market. So their policy pertaining to loans, advances and investment would have its impact on the entire money market. Skyes in his book ‘The London Money Market’ compares it to a cart wheel, “whose axle is the bank of England and the hub of the wheel is represented by the joint stock banks, the spokes by the other types of banks and the rim by the discount houses”. In India we have organised and developed commercial banks but their activities are confined to urban areas only.
Content Guidelines 2. Before publishing your Articles on this site, please read the following pages: 1. Our mission is to provide an online platform to help students to discuss anything and everything about Economics. Another feature of a developed money market is that it has an integrated interest rate structure. To clarify it, a change in the bank rate results in equi-proportionate change in the interest rates which exist in cases of different sub-markets. The flow of funds into the money market should also be flexible enough, i.e., the flow of funds can be increased or decreased depending upon the demand for funds. The central bank has a wider look to understand the economy and judging its monetary requirements. Above all, these institutions are important providers of black money in the economy.
The bills are drawn in a standard form and are accepted and discounted. Their lending policies are often harsh if we compare it with the lending policies of unorganised component of the market. RBI, the country experienced the two infamous banking scams one was Harshad Mehta Scam of 1992 and the other was the Ketan Parekh Scam in 2002. In the money market, the short- term funds of banking institutions and individuals are bid by borrowers and the Government.
Near Money-assets 5. Another feature of a developed money market is the availability of ample resources. These are tradeable and negotiable in the short-term money markets. Account Disable 12.
There will be markets for call loans, the collateral loans, acceptances, foreign exchange, bills of exchange and commercial and treasury bills. Other Factors. These securities include federal and municipal bonds, certificates of deposit from financial institutions, and commercial paper, a kind of unsecured IOU, from large corporations. Privacy Policy 9. Being the leader of the money market, the central bank must have a final say on a country’s financial system. Welcome to EconomicsDiscussion.net!
(iii) Existence of sub-markets: In developed money market the various sub-markets existed and functioning smoothly. PreserveArticles.com: Preserving Your Articles for Eternity.
India is, of course, not the exception. As a result, the objective of controlling inflation or deflation gets frustrated. (vii) Flexibility and adequacy of funds: In a developed money market, there must be ample resources.