Money Market
The financial system of any country is a con conglomeration of sub market, viz Money, capital and Forex markets. The role of money market in the overall financial system is prime as it provides an avenue for equilibrating the short-term surplus funds of lenders and the requirements of borrowers. Thus presence of an active and vibrant money market is an essential Pre-requisite for growth and. development of an economy.
The money market is market for short-term financial assets, which can be turned over quickly at low cost... In a wider spectrum, a money market can be defined as a market for short term Money and financial assets that are near substitutes for money (Vaghul Committee). The Term short term means generally a period up to one year and near substitutes for money is used to denote any financial assets, which can be quickly converted into money with minimum transaction cost. In fact, money market is the institutional source of working capital to the industry.
There is, however, basically a difference between the money market and capital market. The operations in money market are for duration up to one year and deals in short term financial assets whereas in capital market an operation are for a longer period beyond one year and therefore, deals in medium and long term financial assets.
The major participants in the market are the CBs, the other financial intermediaries, large corporate and the RBI. Being the residual source of funds, the RBI plays a pivotal role and occupies a strategic position in the Indian Money Market.
Pre-Conditions for an efficient money market
A well developed money market:
(i) Uses a broad range of financial instruments.
(ii) Canalizes savings into productive investments
(iii) Promote financial mobility in the form of inter sectoral flows of funds
(iv) Facilitate the implementation of monetary policy by way of open market operations.
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