Money Market

Introduction

• The money market is a market that deals with financial assets which are close substitutes of money.
• It is a market for overnight to short-term funds having maturity of less than a year.
• It is not a physical market but all the activities take place over the telephone. It is one of the most crucial segments of the Indian financial system as it fulfills the immediate requirement of funds.

Functions of Money Market

• Money markets provide reasonable access to suppliers and users of short-term funds at an efficient market clearing price.
• It plays an important role in monetary policy transmission.
• It provides a non-inflationary source of finance to the government.
• It provides a focal point for central bank (Reserve Bank of India) intervention for influencing liquidity and general levels of interest rates in the economy.

Characteristics of Money Market

• It is a wholesale market for short-term debt instruments.
• It is the source of working capital finance for firms.
• Participation in the money market is confined to banks and Financial Institutions. The Indian money market consists of the Reserve Bank of India, Commercial banks, Co-operative banks, and other specialized financial institutions like LIC, GIC, UTI, etc.
• Transactions in the money market can be both secure and unsecure.
• The money market does not deal in cash or money as such, but simply provides a market for credit instruments such as bills of exchange, promissory notes, commercial paper, treasury bills, etc. 
• The credit instruments which are used in the money market are a close substitute for money.
• The Reserve Bank of India is the leader of the money market in India. Some Non-Banking Financial Companies (NBFCs) and financial institutions also operate in the Indian money market.
• Money market can be further classified into Call Money Market, Notice Money Market and term Money Market: The market to get funds for 15 days to 1 year.