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Composition of Indian Money Market, Indian Economy Video Lecture | Business Economics for CA Foundation

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1. What is the composition of the Indian money market?
Ans. The Indian money market is composed of various components such as the Reserve Bank of India (RBI), commercial banks, cooperative banks, non-banking financial companies (NBFCs), money market mutual funds, and other financial institutions. These entities facilitate the borrowing and lending of short-term funds and the trading of money market instruments.
2. How does the Indian money market contribute to the Indian economy?
Ans. The Indian money market plays a crucial role in the Indian economy by providing a platform for the efficient allocation of short-term funds. It helps in channelizing savings into productive investments, ensuring smooth liquidity management for banks and financial institutions, and facilitating short-term borrowing and lending for individuals and businesses. Additionally, it provides a benchmark for interest rates and influences monetary policy decisions.
3. What are the key characteristics of the Indian money market?
Ans. The key characteristics of the Indian money market include its decentralized nature, with various participants operating in different segments. It comprises both organized and unorganized sectors, with different types of money market instruments traded. The market also exhibits high liquidity, low credit risk, short maturity periods, and a close relationship with the central bank (RBI) in terms of regulation and oversight.
4. What are the types of money market instruments traded in the Indian money market?
Ans. The Indian money market offers a range of money market instruments, including Treasury Bills (T-Bills), Commercial Papers (CPs), Certificates of Deposit (CDs), Repurchase Agreements (Repos), Call Money, and Treasury Bills. These instruments serve as short-term debt obligations, allowing participants to invest surplus funds or raise short-term funds as per their requirements.
5. How does the Indian money market contribute to the stability of the Indian financial system?
Ans. The Indian money market plays a critical role in maintaining the stability of the Indian financial system. It helps in managing short-term liquidity requirements for banks and financial institutions, thereby preventing any disruptions in the flow of funds. Additionally, the market provides a platform for the efficient pricing of short-term funds, which aids in the implementation of monetary policy by the RBI. The money market instruments traded also allow participants to diversify their investment portfolios and manage risk effectively.
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