Consider the following statements regarding the Call Money Market 1 This is basically an inter bank ...........

Finance (Phase -I & II) Valuation of Securities

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Consider the following statements regarding the Call Money Market:

1. This is basically an inter-bank money market where funds are borrowed and lent for one day.

2. No Collateral Security is required to borrow from this market.

Which of the above statement is true?

Only 1

Only 2

Both 1 and 2

Neither 1 nor 2

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Explanation:

This is basically an inter-bank money market where funds are borrowed and lent for one day. Also known as over-night borrowing (called as money at call) and for a period up to 14 days (called short notice). No collateral is required to borrow from this market. Funds are usually raised from this market up to three days—the higher the interest, the longer the period for which the funds have been borrowed.

The scheduled commercial banks, co-operative banks operate in this market as both the borrowers and lenders while LIC, GIC, UTI, IDBI and NABARD are allowed to operate as only lenders in this market. The interest rate in this market depends upon the demand and supply of the funds on a particular day which is market determined.

By: Yachna

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Adil

In the explanation given, it clearly states that 'No collateral security is required to borrow from this market'. Hence the correct answer is 'Only 1'.

Mayank Gupta

in explanation it is mentioned that no collateral is required, but in ans collateral is required is stated as correct.