The money market is a financial market where banks and other financial institutions trade in short-term debt securities such as commercial paper (CP), certificate of deposits CDs), repo market (ready forward contracts), treasury bills (TBs), Collateralized Borrowing and Lending Obligations (CBLO) etc. The money market basically provides platform to financial institutions for borrowing and lending money for a short term of up to one year.
By definition, the investments in money market are for a maximum tenor of up to one year. Money market offers the maximum safety to investors with a wide range of maturities within the period of one year. The surplus money held by a bank or financial institution in excess of day-to-day needs utilised for money market operations. Similarly, they borrow through money market from other institutions to tide over their asset-liability mismatch. The money market is classified into ‘overnight money market’, ‘Notice money market’ and ‘term money market’ on the basis of the tenor of lending and borrowing transactions.
When tenor of the transactions is one working day such market is referred as ‘Call Money market’ or ‘overnight money market’ whereas the tenor in ‘notice money market’ starts from 2 days to 14 days. The term money market refers to borrowing and lending when the tenor of the transaction is between 15 days to one year.
All the lending and borrowing transactions of money market are required to be reported instantly to RBI through electronic platform Negotiated Dealing System (NDS).
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