Page 96 - VIRANSH COACHING CLASSES
P. 96
Government to fulfil its short term financial
behalf of the government to meet temporary requirements on the basis of Treasury Bills.
liquidity shortfalls.
6) Implementation of Monetary policy :
• Commercial Papers (CPs) : It is an Monetary policy is implemented by the
unsecured promissory note, negotiable and central bank. It aims at managing the
transferable by endorsement and delivery quantity of money in order to meet the
with a fixed maturity period.
requirements of different sectors of the
• Certificate of Deposits (CDs) : They are economy and to increase the pace of
unsecured, negotiable instruments in bearer economic growth. A well-developed money
form issued by commercial banks and market ensures successful implementation
development finance institutions. of the monetary policy. It guides the central
• Commercial Bills (CBs) : They are bank in developing an appropriate interest
short term, negotiable and self-liquidating policy.
instruments with low risk. 7) Economizes the use of cash : Money market
Role of Money Market in India : deals with various financial instruments
The following points outline the role of the that are close substitutes of money and not
money market in India : actual money. Thus, it economizes the use
of cash.
1) Short-term requirements of borrowers :
Money market provides reasonable access 8) Growth of Commerce, Industry and Trade:
for meeting the short-term financial needs Money market facilitates discounting bills of
of the borrowers at realistic prices. exchange to local and international traders
who are in urgent need of short-term funds. It
2) Liquidity Management : Money market
is a dynamic market. It facilitates better also provides working capital for agriculture
management of liquidity and money in the and small scale industries.
economy by the monetary authorities. This, Problems of the Indian Money Market :
in turn, leads to economic stability and Compared to advanced countries, the Indian
development of the country. money market is less developed in terms of
3) Portfolio Management : Money market volume and liquidity. Following points explain
deals with different types of financial the problems of the Indian Money Market :
instruments that are designed to suit the risk 1) Dual Structure of the Money Market :
and return preferences of the investors. This Presence of both, the organized and
enables the investors to hold a portfolio of unorganized sector in the money market
different financial assets which in turn, helps leads to disintegration, lack of transparency
in minimizing risk and maximizing returns. and increased volatility. The unorganized
4) Equilibrating mechanism : Through markets lack co-ordination and do not come
rational allocation of resources and under the direct control and supervision of
mobilization of savings into investment the RBI.
channels, money market helps to establish 2) Lack of uniformity in the rates of
equilibrium between the demand for and interest : The money market comprises
supply of short-term funds. of various entities such as commercial
5) Financial requirements of the banks, co-operative banks, non-bank
Government : Money market helps the finance companies, development finance
87
