Call Money Market

It’s the money used to finance short term needs and lend short term surpluses, ranging from overnight to maximum tenor of 14 days. ‘Overnight’ usually means 12:00 p.m. one day to 12:00 p.m. the next day.  Usually brokers and dealers borrow money from call money market to cover their customers’ margin accounts or finance their own inventory of securities. Banks act as both lenders and borrowers of this market. 

Call money is not a marketable instrument or security. It’s an unsecured lending from one bank to another bank or dealers or brokers. The term Call Money derives from the fact that the money lent can be called back by the lender at any point in time. In practice, however, this right is hardly exercised. Some times money is lent with a clause that it can be recalled with a notice of say 3 or 7 days. This type of lending is called notice money. 

Call and notice money markets serve important purpose of providing overnight rates, which is used for other purposes. Interest rates on many instruments are reset every day in line with the overnight rates. The overnight rate for dealing in Euro is called EURONIA (Euro Overnight Indexed Average). Similarly overnight rate in pound sterling is called as SONIA.

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June 29, 2008 | Filed Under Bonds 

Comments

2 Responses to “Call Money Market”

  1. AMIT KAPOOR on June 6th, 2009 12:03 pm

    meaningful and useful content.

  2. sachin sharma on September 14th, 2009 4:08 pm

    briefly explanation of topic.

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