Define: Call Money Market

A call money market is a segment of the financial market where banks and financial institutions lend and borrow funds for a short period, usually overnight, to meet their short-term liquidity needs.

In the call money market, banks and financial institutions borrow funds from each other by placing a call to the lender and requesting the desired amount. The borrowing is typically unsecured, and the interest rates are negotiated between the parties involved.

Yes, the call money market is regulated by the central bank or monetary authority of a country. They set guidelines and regulations to ensure the smooth functioning and stability of the market.

Banks, financial institutions, and other eligible entities approved by the regulatory authorities can participate in the call money market.

The main risk in the call money market is the counterparty risk, which refers to the risk of the borrowing party defaulting on their repayment obligations. However, this risk is mitigated to some extent as the market is regulated and participants are usually well-established financial institutions.

Call money market transactions are usually very short-term, with a maturity period of one day or overnight. However, some transactions may have longer durations, such as up to a week.

Participating in the call money market allows banks and financial institutions to efficiently manage their short-term liquidity requirements. It provides them with a flexible and cost-effective source of funds.

The tax treatment of call money market transactions may vary depending on the jurisdiction. It is advisable to consult with a tax professional or refer to the relevant tax laws to determine the tax implications.

Call money market transactions are primarily used for short-term liquidity management and not for speculative purposes. Engaging in speculative activities may not align with the intended purpose of the call money market and may be subject to regulatory scrutiny.