Economics • Banking & FinanceHard
Analyze the functioning of the 'Call Money Market' in India. What type of transactions are predominantly conducted in this segment of the financial system?
A. Long term sovereign debt issuance for financing fiscal deficits exceeding ten years
B. Overnight borrowing and lending of unsecured funds among commercial banks and eligible financial institutions✓ Correct Answer
C. Retail foreign exchange conversion for international travel and tourism expenses
D. Primary market allocation of equity shares during initial public offerings
💡 Solution & Explanation
The call money market is an overnight inter bank money market where unsecured funds are borrowed and lent for a duration of one day, serving as the epicenter for daily liquidity management. Term money market handles borrowings ranging from 15 days to one year. Sovereign debt is issued through dated government securities auctions managed by the RBI. Interest rates in the call money market closely track the policy repo rate under the liquidity adjustment facility.
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