Structure of Money market in India
The money market in India consists of several components that work together to facilitate short-term borrowing and lending of funds. The following is an overview of the structure of the money market in India:
- Call Money Market: The call money market is a segment of the money market in India where banks and financial institutions lend and borrow funds overnight. The interest rate in this market is known as the call rate.
- Treasury Bills Market: The treasury bills market is a segment of the money market where the government issues short-term debt securities with a maturity period of up to one year. These securities are known as treasury bills and are issued at a discount to their face value.
- Certificate of Deposit (CD) Market: The CD market is a segment of the money market where banks issue certificates of deposit to raise funds from investors. These certificates have a maturity period of up to one year and are issued at a fixed interest rate.
- Commercial Paper (CP) Market: The CP market is a segment of the money market where companies issue commercial papers to raise funds from investors. These papers have a maturity period of up to one year and are issued at a fixed interest rate.
- Repo Market: The repo market is a segment of the money market where banks and financial institutions borrow and lend funds against collateral. The interest rate in this market is known as the repo rate.
- Bills Discounting Market: The bills discounting market is a segment of the money market where bills of exchange are discounted by banks and financial institutions. Bills of exchange are short-term negotiable instruments used for financing trade transactions.
- Money Market Mutual Funds (MMMFs): MMMFs are mutual funds that invest in money market instruments such as treasury bills, certificates of deposit, commercial papers, and call money. These funds are a popular investment option for investors seeking liquidity and safety.
In conclusion, the structure of the money market in India is diverse and complex, consisting of several segments and instruments. The market provides a platform for short-term borrowing and lending of funds, and plays a crucial role in maintaining the liquidity of the financial system.
