Sreevarshini N K, SLS, Pune
A market for short-term debt products is the money market. As it gives financial institutions and other entities a method to borrow and lend money for brief periods of time, it is an essential component of the financial system for smooth functioning of the economy.1 It is highly a corporate affair. Commercial banks, the Reserve Bank of India (RBI), non-banking financial corporations (NBFCs), and mutual funds are just a few of the organizations that make up the Indian money market. As the entity in charge of determining interest rates and supplying the market with liquidity, the RBI is crucial to the functioning of the money market.
A wide range of organizations, including commercial banks, corporations, the government, and people, use the money market. Corporates utilize the money market to raise capital in a short- term, while commercial banks use it to manage their liquidity. The money market is where the government raises money to cover its short-term borrowing needs. People invest their extra money in the money market. The interest rates on the money market fluctuate due to a number of variables, including the supply and demand for funds, the RBI's monetary policy, and the state of the economy as a whole.
The Indian economy relies heavily on the money market. It aids in ensuring that the market has an adequate supply of liquidity, which is essential for the efficient operation of the economy. Additionally, the money market aids in the pricing of risk, which is crucial for the effective distribution of capital. Businesses and other entities can obtain short-term funding via the money market. They may be able to finance their short-term investments and meet their working capital needs as a result. Also, to protect against risks like interest rate and foreign exchange risk, one can use the money market. Protecting their financial assets is crucial for businesses and other organisations.
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