Structure of Money Market

 The structure of the money market can be studied as follows:

The components or sub-market of the Money market

   The money market is not homogeneous. It is a loosely organized institution with several divisions and sub-divisions. Each division or sub-divisions deals with a specific type of credit operation. All the sub-markets deal in short-term credit. The following are the essential constituents or sectors of the money market. 

1. Call Money Market

   The call money market refers to the need for a short period. Stock exchange bill brokers and dealers typically borrow money from commercial banks on demand. The duration of these loans is extremely brief—never longer than seven days—often just from day to day or overnight, or for 24 hours. Collateral security against call money is not in demand. They possess high liquidity. The borrowers must pay the loan as and when requested, i.e. at concise notice. Because of this, these loans are called 'Call money' or call loans. Thus, call money market is an essential component of the money market.

Call loans are usually utilized more to satisfy the liquidity demand than for profit because their interest rate is meager and changes frequently throughout the day. Call loans are advantageous to commercial banks since they can be paid back in cash anytime. They always behave like money. Commercial banks it is a type of secondary cash reserve from which they can also make money.

2. Collateral Loan Market

It is another area of the money market that is specialized. The demand for loans with stock collateral is the most geographically diverse and loosely regulated. Commercial banks generally advance loans to private parties in the market. The securities, stocks, and bonds back the collateral loans. Government bonds with high value that is easily tradable and have moderate price fluctuations may be used as collateral security. 

When the loan is repaid, the borrower receives the money used as collateral. The collateral belongs to the lender when the borrower cannot repay the loan. The duration of these loans is a few months. The dealers in stocks and shares are typically the borrowers. However, even small commercial banks can obtain collateral loans from larger banks. 

3. Acceptance Market

An old-fashioned type of business credit is bankers' acceptance. The term "acceptance market" refers to the demand for banker's acceptances, essentially business draughts that banks accept. It is necessary to pay a given amount on a specific date to the order of a particular party or the bearer. These acceptances result from business dealings conducted both domestically and overseas. The acceptance market is where bankers' acceptances are promptly exchanged and discounted. According to Raymond P. 

Kent's definition in the book "Money and Banking," a banker's acceptance is a “draught that is drawn on a bank by a person or a business and accepted by the bank, instructing it to pay a certain sum of money to the direction of a particular party or bearer at a particular future time.” A banker's acceptance of a cheque must be distinguished from it. A cheque is payable on demand, while a banker's acceptance is payable on a specific date. Because they bear the bankers' signatures, bankers' acceptances can be easily disregarded in the money market.  

 There are no bank funds involved in the case of acceptance houses. The draught has only received the bank's additional guarantee. The critical distinction is that international trade is primarily used for banker's acceptance. There are specialized companies in the London Money Market called acceptance houses that take bills drawn on them by dealers rather than drawing on the actual debtors. Acceptance houses had played a significant role in the London Money Market, but that role has significantly diminished. Due to the lack of growth in the acceptance market, these have no relevance in the Indian Money Market. 

4. Bill Market

  In this market, short-term documents and bills are purchased and sold. The essential short-term documents are (a) Bills of exchange and (b) Treasury bills.

  (a) Bills of exchange. Commercial papers include bills of exchange. A written, total order with the drawer's signature that demands the drawee pay a certain sum of money immediately or at a predetermined future date is known as a bill of exchange. The bill itself becomes a legal document if the buyer indicates that he accepts it. Commercial banks discount or rediscount such bills to give credit to the bill holders or borrow from the central bank.

  (b) Treasury bills. Treasury bills are short-term, often 91-day-long, government-issued securities. Treasury bills are the government's promissory notes that promise to pay a specific amount after a particular time. The central bank sells these on behalf of the government. An essential aspect of a treasury bill is no interest rate fixing beforehand. The Treasury makes the bills available through competitive bidding, so whoever offers the lowest interest rate will be granted access to the notes. 

Treasury bills are considered official documents, which gives investors confidence. They make suitable investments for commercial banks' short-term money because their purchase carries minimal risk. Since discounting is the primary exchange process, it is called a 'discount market'. The critical issue is that since the stock market, the government's long-term loan market, or the market for treasury bonds deals over a lengthy period, they cannot be viewed as components of the money market.


It follows from the preceding description that various marketplaces are a money market component. For instance, the borrowing and lending of call loans and advances are called the "call money market". Collateral loans are loans secured by stocks, bonds, and other types of assets. The term "acceptance market" refers to the process wherein bills are accepted before being discounted. The buying and selling of bills are referred to as the bill market. These four segments of the money market are all. 


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