26.

What is meant by 'Money Market’? Explain any two instruments used in Money Market. 

Money market refers to institutional arrangements, which deals with short-term securities. These assets are close substitutes for money. It is a market where low risk, unsecured and short term debt instruments that are highly liquid are issued and actively traded every day. It has no physical location but is an activity conducted over the telephone and through the internet. It enables the raising of short-term funds for meeting the temporary shortages of cash and obligations and the temporary deployment of excess funds for earning returns.

Money market instruments:

1) Call/Notice money: It is an amount borrowed or lent on demand for a very short period. It is short-term finance repayable on demand with a maturity period of one to fifteen days. The money that is lent for one day in this market is known as 'Call Money' and, if it exceeds one day, is referred to as 'Notice Money'. No collateral security is required to cover these transactions. Call money is a method by which banks borrow from each other to maintain the cash reserve ratio. The interest rate paid on call money loans is known as the call rate.

2) Certificate of Deposits (CDs): They are unsecured, negotiable short-term instruments issued by banks and financial institutions to raise large amount of money. These are issued in the form of Promissory Notes with maturity ranging from 7 days to one year. The minimum maturity period of a certificate of deposit is between 7 days and one year. They are freely transferable after 45 days of the date of issue.