The Money Market is a financial market where short-term borrowing and lending of funds, typically for periods of one year or less, occur through various low-risk and highly liquid instruments. 

The Constituents of the Money Market

Money Market has many Constituents like Call Money Market,  Treasury Bill Market, Repo Market, Commercial Bill Market, Certificate of Deposit (CD) Market, Commercial Paper (CP) Market, and Money Market Mutual Funds (MMMFs). The details of Important constituents of the Money Market are as follows:

1. Call Money Market

The call money market is like a quick loan market where borrowing and lending money happens for just one day. People call these short-term loans “call loans,” and they can be extended for up to 14 days. Banks are the main players here, using it to manage their daily cash needs. Interestingly, even big financial institutions like LIC and GIC have joined in. The market is also known as the interbank called the money market.

2. Treasury Bill Market 

The other constitutes of the Money market is the Treasury Bill market. Think of treasury bills as short-term IOUs issued by the government through the Reserve Bank of India (RBI). They do this when the government needs a quick cash boost.

3. Repo Market

In the repo market, people lend money by using certain financial assets as collateral. It’s like pawning something but with financial instruments instead of jewelry. This helps manage short-term cash flow.

4. Commercial Bill Market

This market deals with bills of exchange, which are like IOUs between businesses. It’s common when goods are sold on credit or when companies lend money for a short period. However, this market isn’t as developed in India.

5. Certificate of Deposit (CD) Market

Banks issue certificates of deposit to people who put their money in the bank for a fixed period. They do this in chunks of Rs. 10 lakh or more. Even big financial institutions like LIC, IFCI, and SIDBI can issue these certificates. This gives people more options to invest their extra money for the short term.

6. Commercial Paper (CP) Market

The commercial paper market is relatively new. It’s a way for companies to get quick cash by issuing short-term promises to pay back the money. But there’s a condition: the company must be publicly listed.

7. Money Market Mutual Funds (MMMFs)

These are like savings accounts for small investors who want to play in the money market. At first, not many people used them, but they became more popular over time. They got a makeover in 1995 and 1996, and in 2000, they started following rules from SEBI (Securities and Exchange Board of India).

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