What are the advantages and disadvantages of call money market ? Describe the discount market or commercial bills market?
Contents
Advantages of Call Money Market
These are as under:
- It provides facility of high liquidity because money lent in this type of market can be called back at any time.
- Sudden payments and remittances are possible.
- It offers a profitable parking place for employing the surplus funds.
- It helps the Government to raise short-term funds.
- Call loans are safe since the participants have a strong financial standing.
- It is helpful to central bank operations.
Disadvantages of Call Money Market
Following are the drawbacks of call money market in India:
- It is confined to only big industrial and commercial centres.
- Call money markets are not fully integrated.
- There is the volatile nature of the call money rates.
Discount Market or Commercial Bills Market
According to Section 5 of the Negotiable Instruments Act, 1881, “An instrument in writing containing an unconditional order, signed by the maker, directing a certain person to pay a certain sum of money only to, or to the order of a certain person or to the bearer of the instrument.”
A commercial bill is arised out of a genuine trade transaction i.e. credit transaction. It contains a written order from the creditor to the debtor to pay a certain sum to certain person, after a certain period. A bill of exchange is a self-liquidating paper.
Types of Bills: It may be of the following types:
- Demand and usance bills;
- Clean bills and documentary bills;
- Indigenous bills;
- Inland and foreign bills;
- Accommodation bills and supply bills;
- Export bills and import bills.
Operations: It can be classified into two parts:
- Discount market;
- Acceptance market.
Advantages of Commercial Bills Market: These are as under:
- These are highly liquid assets.
- Bills keep certainty of payment.
- It is a negotiable asset and self-liquidating.
- Bills represent advances for a definite period.
- If bills are dishonoured, the legal remedy is simple.
- The central bank can easily influence the money market.
Disadvantages of Commercial Bills Market
Following are the drawbacks of commercial bills market:
- India, bills are not popular. Here, there is a absence of bill culture.
- In India, foreign trade comparatively national income remains small.
- Stamp duty discourages the bill culture.
- There is a lack of active secondary market for bills.
- The banks have a nature to hold the bills till maturity.
- Banks prefer to purchase bills.
Related Link
- Features of Developed Money Market | Recent developments in India’s money market
- Main Forms of Government Securities
- Instruments of Issue
- Difference between capital market and money market
- Role of SEBI in Regulating the Capital Market
- Functions of SEBI: Regulatory and Preventive Functions
- Advantages and Disadvantages of call money market
- Recent trends in the Indian capital market
- Characteristics of Indian Capital Market
- Globalisation and Indian Financial Market
IMPORTANT LINK
- What is the Exchange Rate System in India?
- Evolution of foreign exchange market in India
- Meaning and importance of export finance.
- Role of Export-Import Bank in Financing India’s Foreign Trade
- How Commercial banks Export Finance to Overseas Importers?
- Explain packing credit in detail?
- What is Post-shipment credit?
- What is Pre-shipment or packing credit?
- Explain Export Credit in India?
- Institutions Providing Finance and Credit Facility for Foreign Trade
- What is Risk Analysis?
- Explain Political risks in detail? and its Types
- What are the types of Risks. Explain in detail?
- Meaning and Types of commercial risks
- How can we minimize foreign trade risks?
- What are Arbitrage operations?
- Difference between Spot Market and Forward Market
- What is spot exchange?
- Agency agreement: Meaning, Features and Advantages
- Functions of Foreign Exchange markets
- structure of Foreign exchange markets
- Describe the various types of money
- Dynamic Functions of Money
- Evils or Demerits of Money
- Importance and significance of money in Modern Economy
- Approaches regarding Definitions of Money and its Function
- Money: Meaning, Definitions and features of Money
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