Call Money

 Call Money is a segment of the market where scheduled commercial banks lend or borrow on short notice (say a period of 14 days). In order to manage day-to-day cash flows. The interest rates in the market are market-driven and hence highly sensitive to demand and supply. Also, the interest rates have been known to fluctuate by a large % at certain times.

 Here are some major features of Call Money:

Very Short-term: Call Money is an unsecured loan with the shortest maturity in the money market, typically ranging from one day (overnight) to a maximum of fourteen days. This allows for quick borrowing and repayment to meet immediate liquidity needs.

 Over the counter: Call Money offers a highly liquid and flexible way for financial institutions to manage their short-term cash flow needs, but comes with inherent features like unsecured borrowing, volatile interest rates, and limited transparency.

 Participants: The primary participants in the call money market are financial institutions like banks, non-banking financial companies, and insurance companies. These institutions may have surplus funds they can lend or require short-term funding to meet their obligations.

 Interest Rate Volatility: The interest rate on call money, also known as call rate, is highly volatile and can fluctuate significantly depending on supply and demand for funds in the market.

Limited Transparency: Due to the OTC nature of the market, there’s limited transparency in terms of overall transaction volume and interest rates compared to exchange-traded instruments.

In summary, Call Money offers a highly liquid and flexible way for financial institutions to manage their short-term cash flow needs, but comes with inherent features like unsecured borrowing, volatile interest rates, and limited transparency.