Functions of money market

 Following  are the functions of money market:- 

(1) It provides short term funds to public and private institutions needing such financing for their working capital requirements. It is done by discounting Trade bills through commercial banks, discount houses, brokers and acceptance houses. Thus the money market help the development of commerce , industry and trade within and outside the country.

(2) It provides an opportunity to banks and other institutions to use their surplus funds profitably for a short period. These institutions include not only commercial banks and other financial institutions but also large non financial business corporations states, and local  governments.

(3) The money market remove the necessity of borrowing of the commercial banks from the RBI. If the former find their reserves short of cash requirements they can call in some of their loans from the money market. The commercial banks prefer to recall their loans rather than borrow from the central bank at a higher rate of interest.

(4) The money market helps the government in borrowing short term funds at low interest rate on the basis of treasury bills. On the other hand , if the government were to issue paper money or borrow from the RBI it would lead to inflationary pressures in the economy.

(5) The money market helps in the successful implementation of the monetary policies of the Central bank. It is through the money market that the RBI is in a position to control the banking system and thereby influence commerce and industry.

(6) By facilitating the transfer of funds from one sector to another the money market helps in financial mobility. Mobility in the flow of funds is essential for the development of commerce and industry in an economy.

(7) One of the important functions of the money market is that it promotes liquidity and safety of financial assets. It does encourages savings and investment.

(8) The money market brings equilibrium between the demand and supply of loanable funds. This, it does by allocating savings into investment channels. In this way , it also helps in rational allocation of resources.

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