Definition
Call money is minimum 5% short-term finance repayable on demand, with a maturity period of one to fourteen days or overnight to fortnight. It is used for inter-bank transactions. The money that is lent for one day in this market is known as “call money” and, if it exceeds one day, is referred to as “notice money.”
What is ‘Call Money’
Call money is money that has been borrowed by a bank and that must be returned immediately upon demand. In contrast to a term loan, which has a predetermined maturity and payment schedule, call money does not have to be paid according to a predetermined timetable. Using call money as a short-term source of financing for margin accounts or the purchase of assets, brokerage firms may meet their liquidity needs. The monies may be collected in a short period of time.
Explaining ‘Call Money’
In recognition of the risk involved in employing funds that may be withdrawn at any moment, brokers often reserve the use of call money for deals that will be completed in a short period of time. In the event that the bank recalls the money, the broker may issue a margin call on its customers in order to make the necessary payback. The interest rate on the loans is calculated based on the call money rate.
Call Money FAQ
What is call money lending?
Funds that are deposited with a financial institution but do not have a set maturity date. At any point in time, the money may be 'called' or withdrawn.
Is call money secured?
There is no collateral involved in this borrowing and lending. The borrowing or lending of monies for a single day is referred to as 'Call Money.'
What is cash and call money?
Commercial banks are required to maintain a minimum cash level, known as the cash reserve ratio, in order to do business. Using call money, banks may lend money to one another in order to keep the cash reserve ratio stable and maintain the cash reserve ratio. The call rate is the interest rate paid on call money. It is the rate of interest paid on call money.
Is call money a money market instrument?
Treasury bills, commercial papers, certificates of deposit, and call money are the most often traded money market products in the United States. It is very liquid due to the fact that it contains instruments with a maturity of less than one year. The majority of money market products provide set rates of return.
How does call money market work?
In a Call Money Market (CMM), loans are given by the participants in the form of auctions, and the borrowers compete for the loans by placing bids on them. These bids are made based on the interest rate at the time. As a result, the funds are awarded to the bidder who offers the highest interest rate on a given loan.
Further Reading
- Financial liberalization and money demand in the ASEAN countries – onlinelibrary.wiley.com [PDF]
- The interrelations of finance and economics: Theoretical perspectives – www.jstor.org [PDF]
- What do we call money? An appraisal of the money or non-money view – www.cambridge.org [PDF]
- Inter-bank call money market transaction in Indonesia – journal.uii.ac.id [PDF]
- Tests of the Black-Scholes and Cox call option valuation models – www.jstor.org [PDF]
- Financial changes and interest elasticity of money demand: Further tests of the Gurley and Shaw thesis – www.tandfonline.com [PDF]
- 11 Islamic money market instruments – books.google.com [PDF]
