Money Market & Terms related to Money Market

Financial markets can be divided into two different categories i.e. Money markets and Capital markets. Now I am going to describe the money market and terms related to it.

Money market refers to the market where short-term monetary assets are bought and sold. According to the Reserve Bank of India,” Money Market is the centre of dealings mainly of short-term character in monetary assets”. Financial institutions and financial instruments are the components through which money market operates. Financial institutions include RBI, Commercial Banks, and Cooperative Banks in the organized sector and Indigenous Banks, Money lenders, etc in unorganized sector. Financial instruments include bills, treasury bills, promissory notes, certificates of deposits, etc.

Important terms related to money market are as follows

  • Call money: Money lent for one day
  • Notice Money: Money lent for a period exceeding one day.
  • Term money: Money lend for 15 days or more in Inter-bank market.
  • Held till Maturity: Securities which are not meant for the sale and shall be kept till maturity.
  • Yield to Maturity: Expected rate of return on an existing security purchased from the market.
  • Coupon rate: Specified interest rate on a fixed maturity security fixed at the time of issue.
  • Treasury Operations: Trading in government securities in market. An investor bank can purchase these securities in the primary market. Trading takes place in the secondary market.
  • Gilt-edged security: Government securities that are a claim on the government and are a secure financial instrument which guarantees certainly of both capital and interest. These securities are free of default risk or credit risk, which leads to low market risk and high liquidity.