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Call Money Market

Last updated date: 04th Mar 2024
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What is Call Money?

Call money is a short-term, interest-paying loan from one to 14 days made by a financial institution to another financial institution. Due to the short term nature of the loan, it does not feature regular principal and interest payments, which longer-term loans do. 

Brokerages use call money as a short-term origin of funding to support margin accounts for the interest of their customers who wish to leverage their investments. The funds can shift quickly between lenders and brokerage firms. For this purpose, it is the second most liquid asset that arises on a balance sheet behind cash.

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What is "Money Market"?

To simplify, money market basically refers to a division of the financial market where financial instruments with high liquidity and short-term maturities are purchased and sold. The participants use it as a way of borrowing and lending for the short term. One of the key elements of the Indian financial markets is the call money market, in which surplus funds (mostly from financial institutions) are traded on a regular schedule. 

What is the Call Money Market?

The call money market is an important aspect when there is a surplus of funds in the Indian equity market (mainly from banks) that are sold on a daily basis. The capital market is a market for relatively short-lived capital instruments that can be used as money substitutes. First, the most important feature of a money market is that it is flexible and can be converted into fast cash, even at a relatively cheap price. It also helps to balance lenders' ability to quickly save money by meeting the needs of their customers.

The call money market, as an important element of the financial markets, has a few distinctive features: Call currency is a chargeable asset for sleek financial services.

Because it is essentially a "cell phone" industry, it is logistically simple when both mortgage companies and borrowers manage it.

The best thing is that it offers extra capital and contributes to the growth of a financial statement as a debt restructuring tool.

A constant call money rate helps to smooth out fluctuations in a group's liquid assets from a global perspective, contributing to the financial application's viability. In exchange, a stable macroeconomy serves as a reliable financial services authority or standard-setter. On the local scale, short-term borrowing by institutions enhances the effectiveness of personal finance in two directions. In one sense, call money rate permits banks to maintain a higher repo rate than would otherwise be possible. Call money rate also allows certain financial institutions to raise their amount of diverse money through an additional approach on a long-term premise.

As a result, a dynamic and competitive call money rate enhances corporations' public spending expenditures and increases their total productivity and competitiveness.

Call Money Market Features

The following are some of the most important characteristics of a money market:

In summary, a money market is basically a form of financing. Monetary market sales include short-term capital loans and also the payment of cash for a specific period of time that is available (repaid in full) in just one year.

The Call Money Market Features are as Follows:

  • It is a relatively new industry.

  • There is no set global position.

  • Commercial banks, finance companies, insurance, and other large organizations active in the financial markets.

  • This market offers overnight funds to 14 days funds.

  • The important feature of this market is that the borrower has to return the money when called by the lender.

Money at Call and Short Notice

Money at call and short notice is a part of the call money market. Cash borrowed for one day can be referred to as "call money." This refers to nighttime cash, as opposed to the currency that is loaned for more days and is known as "short notice money." To simple words, money at call and short notice refers to the time when lending company received no collateral for the amount loaned on a specific timeline or on call 

Regulated financial institutions (except RRBs), cooperative banks, and last but not least, principal distributors (PDs) are all the participants of call money market in the call and notice money market, acting as both borrowers and lenders.

What is a Call Money Rate?

The call money rate is said to be a rate at which funds for very short term are traded or lended in the money market. It is a kind of financial loan at a particular rate which has to be returned to the lender by the borrower when demanded by him. 

Benefits of the Call Money Market

Now let's look at some of the advantages of call money market, which are as follows: 

  • Because lending expenses are more volatile in this sector, they can be returned.

  • It is conceivable to have financial intermediaries and transfer funds.

  • It provides a lucrative space for the leftover money.

  • It helps the institutions such as commercial banks to fulfill their RBI reserve requirements whenever there is a shortage of money. 

  • It aids the management in collecting fairly small sums of money.

  • Because the members possess a great reputation and the calls are safe.

  • It's indeed beneficial to the actions of central banks.

Money Market's Disadvantages

The Disadvantages of Call Money Market are as Follows:

  • It is only found in major industrial and commercial areas.

  • The call money markets are just not combined.

  • There's also the issue of money market rates being variable.

  • Who is involved in the call money market? Is an important thing to know.

  • The lender can ask for his amount anytime.

Fun Facts

  1. Extensive Liquidity

Loans given in a call marketplace are very flexible because they can be summoned back at any time when necessary. It allows the banking sector to meet large, unexpected repayments and transfers by placing a market call.

  1. Cash Flow is Great

Bankers can make a lot of money by providing extra cash to the call market while interest rates increase and are quite erratic. It provides a lucrative space for the cash inflows of the banks to be momentarily employed.


The money market consists of negotiable instruments such as commercial papers, treasury bills, and certificates of deposit. It is used by numerous participants, including firms, to allocate funds by selling commercial papers in the market. The money market is considered a secure place to invest due to the high liquidity of securities. It has certain risks that investors should know, but it is the best source to invest in liquid assets.

FAQs on Call Money Market

1. What are the important characteristics of the call money market?

The Features of Call Money Market are:

  • It is one of the Money Market Instruments.

  • Liquidity is very strong.

  • Flexibility in the industry is maintained.

  • Money is available on a tight deadline.

  • It assists in the supply of money. 

  • Documents are sold for a profit.

2. What motivates banks to borrow for the chance to become involved in the call money market? 

Commercial banks have to fulfill the reserve requirements set by the central bank of India. If sometime the reserves are reduced from the said requirements then the banks, in order to fulfill them, can borrow money for a very short time from other commercial banks who have surplus funds.