Money is unique in nature. The money market in developed and developing countries differ markedly from each other in many senses. Indian money market is not an exception to this. Though it is not a developed money market, it is a leading market among the developing countries.
Indian money market has the following major features or characteristics:
1.Dichotomic structure: The Indian money market has a simultaneous existence of both the organized money market as well as unorganized money markets. The organized money market consists of RBI, all scheduled commercial banks and other recognized financial institutions. However, the unorganized part of the money market comprises domestic money lenders, indigenous bankers,trader, etc. The organized
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Multiplicity of interest rates: Indian money market has many levels of interest rates. They differ from bank to bank from period to period and even from borrower to borrower. Again in both organized and unorganized segment, the interest rate differs. Thus, there is an existence of many rates of interest in the Indian money market.
4. Less-developed commercial banking system: Commercial banks are the most important suppliers of short-term funds. But in India there are a large number of financial institutions and indigenous bankers working in their own ways. RBI has no control over them. Thus, it is clear that money market is not well-organized and integrated.
5. Presence of central bank: The Reserve Bank of India has been vested with wide powers of control over different institutions in the money market. The indigenous banking has, however, remained outside the sphere of RBI’s direct control. The rates of interest in the unorganized sector are, therefore, substantially higher than those in the organized sector. The Central Bank controls money supply of the country as per needs of the economy. The other member banks can borrow from The Central Bank during emergency. Thus, a powerful Central Bank controls, regulates and guides the money
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Lack of organized bill market: In the Indian money market, an organized bill market is not prevalent. Though the RBI tried to introduce the Bill Market Scheme (1952) and then New Bill Market Scheme in 1970, still there is no organized bill market in India.
7. High volatility in call money market: The call money market is a market for very short-term money. Here money is demanded at the call rate. Basically the demand for call money comes from the commercial banks. Due to liquidity imbalances, institutions such as scheduled commercial banks, co-operative banks and primary dealers face huge fluctuations in call money market due variation in call rates, and thus it has remained highly volatile.
8. Limited instruments: It is in fact a defect of the Indian money market. In our money market, the supply of various instruments such as the treasury bills, commercial bills, certificate of deposits, commercial papers, etc. is very limited. In order to meet the varied requirements of borrowers and lenders, it is necessary to develop numerous instruments.
9. Influence of inflation: High rate of inflation disturbs the normal functioning of the money market in
In normal times, the monetary authority (usually a central bank or finance ministry) can stimulate the economy by lowering interest rate targets or increasing the monetary base. Either action should increase borrowing and lending, consumption, and fixed investment. When the relevant interest rate is already at or near zero, the monetary authority cannot lower it to stimulate the economy. The monetary authority can increase the overall quantity of money available to the economy, but traditional monetary policy tools do not inject new money directly into the economy. Rather, the new liquidity created must be injected into the real economy by way of financial intermediaries such as banks. In a liquidity trap environment, banks are unwilling to lend, so the central bank's newly-created liquidity is trapped behind unwilling lenders.
The Federal Reserve plays a significant role in maintaining the stability and liquidity (the ability to turn an asset into cash) of the financial system by working towards low and stable inflation and also strive to encourage growth in output and employment . A second component, the Federal Reserve Board...
The coins made in gold, silver and bronze were traded during Roman Empire and the shortage of coins created a barrier for money circulation. However with the establishment of paper money, a sophisticated banking, global clearing system and electronic money, the global financial system evolved with a worldwide framework of legal agreements. In the Global Financial market, foreign currencies issued by the world, countries are traded by the buyers and sellers using currency exchange rates. Now a day, it is very common practices of companies in one country to raise capital in a foreign country by listing their stocks on major foreign exchanges given the growth of equity markets are becoming more globalized (SNHU, 2015).
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The idea of the money growth rule is contingent upon the relationship between the money supply and inflation. Therefore, the question arises whether there even is a relationship between money supply and inflation. As stated earlier, one can see a relation between money and inflation. Presented above is series data that displays this relationship between money supply and the inflation rate over the previous decades. The problem is that there are fluctuations within the data and therefore a broader definition of the money supply must be utilized. Based on the research of Dr. Terry J. Fitzgerald, an economist at the Cleveland Federal Reserve Bank, if one defines money supply as M2, when examining the data over a multiple year progression, a pattern begins to present itself. Further, by graphing the difference between adjusted money growth and inflation, the link becomes evident. These graphs show the weight that changes to the money supply can have upon an economy’s inflation rate.
The term Monetary policy refers to the method through which a country’s monetary authority, such as the Federal Reserve or the Bank of England control money supply for the aim of promoting economic stability and growth and is primarily achieved by the targeting of various interest rates. Monetary policy may be either contractionary or expansionary whereby a contractionary policy reduces the money supply, reduces the rate at which money is supplied or sets about an increase in interest rates. Expansionary policies on the other hand increase the supply of money or lower the interest rates. Interest rates may also be referred to as tight if their aim is to reduce inflation; neutral, if their aim is neither inflation reduction nor growth stimulation; or, accommodative, if aimed at stimulating growth. Monetary policies have a great impact on the economic stability of a country and if not well formulated, may lead to economic calamities (Reinhart & Rogoff, 2013). The current monetary policy of the United States Federal Reserve while being accommodative and expansionary so as to stimulate growth after the 2008 recession, will lead to an economic pitfall if maintained in its current state. This paper will examine this current policy, its strengths and weaknesses as well as recommendations that will ensure economic stability.
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Money has evolved with the times and is a reflection of the progress of man. Early money was a physical commodity, grain, gold or silver. During the vital stage, more symbolic forms of money such as certificates of deposit, bank notes, checks, letters of credit, bonds and other forms of negotiable securities came into prominence. Social development transformed money into a trust, “In God We Trust' it says on the back of the ten-dollar bill.” (The Ascent of Money, 27)
The inflation rate of Thailand was the lowest during 1998. From 1997 to 1998, to solve the Asian financi...
Ritter, Lawrence R., Silber, William L., Udell, Gregory F. 2000, Money, banking, and Financial Markets, 10th edn, USA.
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