Understanding what ‘CALL MONEY’ is all about
The call money market provides short-term loan from 1 to 14 days. So, the call market plays an important role in filling the provisional mismatches of funds.The amount loaned for one day (overnight basis) is called “call money” and for a period of 2 to 14 days is called “notice money.”
Need of Call Money
Banks usually make use of cal money in order to maintain short-term liquidity. There are times when large money outflows are witnessed especially during festival seasons. During those times liquidity tightens in economy as currency circulation increases suddenly.
Scheduled commercial banks (excluding Regional Rural Banks), co-operative banks (other than land development banks) and primary dealers participate in the call money market.
The call rate is interest which is paid on the call money. It’s for the participants to decide what the call rate will be. The call rate is very volatile and changes from hour to hour basis. The minimum call rate on 1 November 2014 was 0.50% and the maximum 8%.
As the call money rate increases the other securities such as commercial paper in the market become more attractive to borrowers.