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MONEY MARKET

MONEY MARKET

  • A money market is a market for borrowing and lending of short-term funds. It deals in funds and financial instruments having a maturity period of one day to one year.
  • It is a mechanism through which short-term funds are loaned or borrowed and through which a large part of financial transactions of a particular country or of the world are cleared.
  • It is different from stock market. It is not a single market but a collection of markets for several instruments like call money market, Commercial bill market etc.
  • The Reserve Bank of India is the most important constituent of Indian money market. Thus RBI describes money market as “the center for dealings, mainly of a short-term character, in monetary assets, it meets the short-term requirements of borrowers and provides liquidity or cash to lenders”.

STRUCTURE OF INDIAN MONEY MARKET

  • Indian money market is characterized by its dichotomy i.e. there are two sectors of money market, the organized sector and the unorganized sector.
  • The organized sector is within the direct purview of RBI regulations. The unorganized sector consists of indigenous bankers; money lenders, non-banking financial institutions etc.

CAPITAL MARKET

  • Capital market is a market for long-term debt and equity shares. In this market, the capital funds comprising of both equity and debt are issued and traded.
  • This also includes private placement sources of debt and equity as well as organized markets like stock exchanges.
  • Capital market includes financial instruments with more than one year maturity. Some of the capital market instruments are:

Equity

Preference shares Debenture/ Bonds ADRs/ GDRs

Derivatives

MONETARY POLICY

  • The term monetary policy is also known as the ‘credit policy’ or called ‘RBI’s money management policy’ in India. How much should be the supply of money in the economy? How much should be the ratio of interest? How much should be the viability of money? etc.  MONEY MARKET
  • Such questions are considered in the monetary policy. From the name itself it is understood that it is related to the demand and the supply of money.

Objectives of Monetary Policy

The objectives of a monetary policy in India are similar to the objectives of its five year plans. In a nutshell, Planning in India aims at growth, stability and social justice.

Many people accepted significance of monetary policy in attaining following objectives:

  • Rapid Economic Growth
  • Price Stability
  • Exchange Rate Stability
  • Balance of Payments (BOP) Equilibrium
  • Full Employment
  • Neutrality of Money
  • Equal income Distribution

ALSO READ : https://www.brainyias.com/industrial-policy/

Indian Economy

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