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FINANCIAL MARKETS
MONEY MARKET
CAPITAL MARKET
Money Market consists of a number of sub-markets which collectively constitute the money market. They are, Call Money Market Commercial bills market or discount market Acceptance market Treasury bill market
Introduction
Call money market is that part of the national money market where day-to-day surplus funds, mostly of banks are traded in. The loans made in this market are of a short term nature, their maturity varying between one day to a fortnight. As these loans are repayable on demand on the option of either the lender or the borrower, they are highly liquid, their liquidity being exceeded only by cash.
Call Rates
The rate of interest paid on call loans is known as the call rate. The call rate is highly volatile and varies from day to day, hour to hour. It varies from center to center and is very sensitive to the supply and demand of call loans. Call rates in India till 1973 were determined by market forces. In 1973 on account of credit squeeze of RBI, call rates reached an all time high of 30% in Dec 1973. To regulate this, IBA informally fixed a ceiling of 15% on the level of call rate which was subsequently reduced to 12.5% in March 1976, 10% in June 1977, 8.6% in March 1978 and 10% in April 1980.
Call Rates
1. 2. 1. 2. Now, this ceiling in call rates have been removed in two stages: Effective Oct 1988, the operations of DFHI were exempted from ceiling. Effective May 1989, the ceilings on the call rate and inter bank money rate were withdrawn. Thus call rate have been deregulated since 1989. There are now two call rates in India: The inter bank call rate. The lending rate of DFHI in the call market.
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