Relevance of development of money market, Financial Management

Relevance of Development of Money Market

The development of the money market is important for the debt market especially through the process of liquidity. The money market provides the required finances and enhances the liquidity in the market and leads to the short end of the yield curve. Various components of the money market foster the development in various ways. The repo market contributes to the development of an active Government Securities market and vice versa because the lending and borrowing processes are conducted safely through repos. There must be a necessary coordination between the Government Securities and money markets where the interest rates are market determined and the central bank manages the debt and monetary policy functions.

Many measures have been taken in recent years to develop a short-term yield curve with deep liquidity in the money market in India. The four important measures in this regard are as follows:

  • First, a Liquidity Adjustment Facility (LAF) has been introduced, comprising repo and reverse repo operations through auctions conducted. This was done to equilibrate the liquidity and to control the short-term interest rates.
  • Second, the non-bank participants in the call market who are currently lenders are withdrawn gradually so as to make the call money market a pure interbank market.
  • Third, refinance support facility is being streamlined and a market-based approach is being brought in. Removal of system of liquidity support on fixed terms and shifting it to a full-fledged Liquidity Adjustment Facility (LAF), is being considered seriously.
  • Fourth, the other parts of the money market, particularly the repo market is being broadened by allowing the players other than banks into lending as well as borrowing in these markets. For further assistance in this direction, a Clearing Corporation of India Ltd., (CCIL) was established.

 

Posted Date: 9/10/2012 7:42:25 AM | Location : United States







Related Discussions:- Relevance of development of money market, Assignment Help, Ask Question on Relevance of development of money market, Get Answer, Expert's Help, Relevance of development of money market Discussions

Write discussion on Relevance of development of money market
Your posts are moderated
Related Questions
Protected Put A protected put would involve a long put and a long stock. For example - ONGC. Underlying stock = Rs. 809 Buy Mar Rs. 900 Put @ Rs.68.8   Total cos

T-Bills are issued to enable the government to tide over short-term liquidity requirements with maturities varying from a fortnight to a year. These instruments a

In 2005, Mr. Gordon Brown's brought up a plan of action to help reduce poverty and boost economic development in Africa. The three essential elements of the 2005 development plan

Q. Calculation of Cost of Capital? Calculation of Cost of Capital: - Calculation of cost of capital includes: (A) Calculation of cost of specific sources of finance (B) C

Part 1: Contingency plan Create contingency plans for the following scenarios: > One of your highly qualified consultants has given three months notice and is planning to move to a

Ask question #Minimum ed# what is cost volume profits and what are the advantages and disadvantages?

A cash-flow yield is the discount rate that makes the price of a mortgage-backed or asset-backed security equal to the present value of its cash flows. It is built

For a given IOS and MCC, how do financial managers decide which proposed capital budgeting projects to accept, and which to reject? For a given MCC and IOS, all independent pro

ABC Ltd. Produces electronic components with a selling price per of Rs.100. Fixed cost amount to Rs.2,00,000/- 5000 units are produced and sold each year. Annua

Entity A is significantly smaller than B in terms of revenue and would not impact LOP's revenue to the same extent. However A earns a noticeably better gross profit margin at 26% a