The money market is a market for short-term financial assets that are close substitutes of money. The most important feature of a money market instrument is that it is liquid and can be turned over quickly at low cost and provides an avenue for equilibrating the short-term surplus funds of lenders and the requirements of borrowers. Maturity of money market instruments is usually up to one year.
Q2. What is maximum period for which money is lent under call money?
Under call money market, funds are transacted on overnight basis
Under notice money market, funds are transacted for the period between 2 days and 14 days.
Term Money refers to borrowing/lending of funds for period between 15 days and one year.
RBI governs and regulates the money market instruments under sections 45K, 45L, and 45W of the RBI Act, 1934
On a fortnightly average basis, borrowing outstanding should not exceed 100 per cent of capital funds (i.e., sum of Tier I and Tier II capital) of latest audited balance sheet. However, banks (scheduled commercial banks) are allowed to borrow a maximum of 125 per cent of their capital funds on any day, during a fortnight.
On a fortnightly average basis, lending outstanding should not exceed 25 per cent of their capital funds. However, banks (scheduled commercial banks) are allowed to lend a maximum of 50 per cent of their capital funds on any day, during a fortnight
Outstanding borrowings of State Co-operative Banks / District Central Co-operative Banks / Urban Co-operative Banks in call / notice money market, on a daily basis should not exceed 2.0 per cent of their aggregate deposits as at end March of the previous financial year.
Primary Dealers are allowed to borrow, on average in a reporting fortnight, up to 225 per cent of their net owned funds (NOF) as at end-March of the previous financial year and lend up to 25 per cent of their NOF in call/notice money market
All dealings in Call/Notice/Term money executed on the Negotiated Dealing System-Call, i.e. NDS-Call
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Tags: Call Money Market MCQ
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