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Unit 3: Financial Markets

4. Another function of money market is to facilitate the central monetary authority of the Notes
country to administer monetary policy to bring about financial stability through various
money market instruments.

3.4 Players of Money Market

By nature, the transactions that take place in the money market are of high volumes, involving
large amounts. Hence, the market is dominated by a relatively small number of large players.
Given below is the list of intermediaries participating in the money market:
1. Government
2. Central Bank

3. Bank
4. Financial Institutions
5. Corporate Units
6. Other Institutions Bodies-MFs, FIIs, etc.

7. Discount Houses and Acceptance Houses
8. Market Makers (Primary Dealers, etc.)
The role and the level of participation by each type of player in the money market differs greatly
from that of the other. Further, the institutional nature of operators indicates that the money
market is a wholesale market. Government is an active money market player and in most
economies, it constitutes the biggest borrower in the money market. The government needs to
borrow funds mainly when the budgeted expenditure goes beyond the budgeted revenue. To
adjust this budget deficit, it generally issues securities in the money market and raises funds.
Apart from this regular deficit adjustment, the government still has to make certain short-term
adjustments. For instance, consider the advance tax receipts of the government. In anticipation
of these cash inflows, it incurs expenses thus creating a deficit. This deficit will later be adjusted
with the advance tax receipts.
The government issues other securities of varying maturities to adjust its deficit borrowings.
The central bank of a country generally operates in the money market on behalf of the
government. It issues government securities based on the present and future requirements of
the government and the market conditions. In certain cases, it also underwrites the issues of the
government. Apart from functioning as a merchant banker to the government, the central bank
also dons the role of a regulator in the money market and issues guidelines to govern the money
market operations and operations. It is through these regulations, that the central bank keeps a
vigil on the money market activities. Such regulatory mechanism becomes essential, especially
since the impact of the money market is felt on the economy, as a whole and on money supply
and interest rates, in specific. One of the most significant segments of the money market players
is the banking industry. Banks mobilize deposits and utilize the same for credit accommodation.
However, banks are not allowed to use the entire amount of deposits received for extending
credit. Most of the developed economies/markets, in order to promote certain prudential norms
for healthy banking practices, require all banks to maintain minimum liquid and cash reserves.
Thus, banks should first ensure that these reserve requirements are met before deciding on their
credit plans. If banks fall short of these statutory reserve requirements, they can raise the same
from the money market since it is a short-term deficit. Sometimes, it so happens that the banks
receive certain attractive loan proposals but do not have the funds for immediate disposal. In
such cases too, banks will tap the money market to make temporary adjustment of funds for the
loan. Further, banks also lend their short-term surplus funds into the money market rather than
keeping them idle. The collective operations of the banks on a day-to-day basis are particularly

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