Problems Associated with Seasonal Fluctuations in Money Supply: Finally, Indian money market is characterised by the seasonal stringency of money supply during the busy season when demand for money shoots high. It keeps the cash reserves of the commercial banks and comes to the rescue of the banks in times of emergency by granting them funds through rediscounting the eligible securities. For prices to play this role, market participants require access to comprehensive information about the risks and expected returns of financial products. If there are more credit instruments with less resources, it means there is more demand for funds with less resources. I controls, regulates and guides the entire money market. A developed money market has easy access to financial resources from both within and outside the country. Organized Banking System: An organized and integrated banking system is the second feature of a developed money market.
More Information about Commercial Papers is. It provides liquidity to the money market, as it is the lender of the last resort to the various constituents of the money market. It is the availability of cheap facilities for the remittance of funds from one place to another which has resulted in raising the resources. Thus, the entire market is dominated by small number of large players. In general, money market accounts have better interest rates.
It deals in borrowing and lending of short- term funds. It controls the entire money market operations by making the availability of funds depending upon the economic cycles. Thus, funds from your money market accounts are used if you overdraw on your regular accounts. Since then the total value of money markets have remained low. On the other hand, they can meet their requirements by recalling their old short-run loans from the money market. Thus from the above discussion it is clear that keeping in view the characteristics of a developed money market, it is only the London Money Market which can be called as the most developed money market. However, the capital market depends upon the nature of and the conditions in the money market.
Withdrawing money from the money market is easier. The unorganised market is largely made up of indigenous bankers and non-bank financial intermediaries like chit funds, nidhis, etc. Integrated Interest-Rate Structure: Another important characteristic of a developed money market is that it has an integrated interest- rate structure. But deposit receipt is issued to the lender by the borrower who repays the borrowed amount with interest on call. They are the main suppliers of short-term funds. Above all, these institutions are important providers of black money in the economy.
Absence of a Bill Market before 1971: Fifthly, to integrate the organised and unorganised sectors of the money market, establishment of a bill market is a necessary condition. Money market is considered a safe place to invest due to the high liquidity of securities. A Central Bank: A developed money market has central banks at the top which is the most powerful authority in monetary and banking matter. Interest rates incurred on the national debt is subject to rate setting by the Fed, and inflation all else being equal allows today's fixed debt obligation to be paid off in ever cheaper to obtain dollars. . The Inquiry believes the financial system achieves this most effectively when it operates in an efficient and resilient manner and treats participants fairly.
Commercial bank: It is the backbone of the money market. Over the years, the importance of the unorganised sector of the Indian money market has been shrinking. Consequently, different money rates prevail in the sub-makers and they remain unconnected with of funds. This can be seen in the ongoing industry focus on deploying new technologies in the Australian financial system to improve the quality and reduce the cost of products and services. In other words, the developed money market has greater responsiveness to changes in demand and supply of short-term funds in any of its segments. It provides liquidity to the money market, as it is the lender of the last resort to the various constituents of the money market. They should be freely available.
There are three types of treasury bills in India—91 days, 182 days and 364 days. In the former, banks and financial firms supply funds to local customers and also to larger centres such as London for direct lending. Thus, the existence of a well-developed money market is essential for an economy. The underdeveloped countries, with slow industrialisation and small volume of internal and international trade and marked by political instability have undeveloped money markets. The latter also require higher minimum deposit amounts. The instruments of credit are the promissory notes. So their policy pertaining to loans, advances and investment would have its impact on the entire money market.
The and discount markets help in financing foreign trade. This was only the second failure in the then 23-year history of money funds and there were no further failures for 14 years. Prices help allocate financial resources to productive uses. Commercial finance is made available to the traders through , which are discounted by the bill market. They discount bills of exchange and treasury bills, and lend against promissory notes and through advances and overdrafts.