BANKING AFFAIRS

Detailed explanation-1: -Banks and PDs borrow and lend overnight or for the short period to meet their short term mismatches in fund positions. This borrowing and lending is on unsecured basis. ‘Call Money’ is the borrowing or lending of funds for 1day.

Detailed explanation-2: -Borrowing/Lending for 1 day is known as Call Money. Borrowing/Lending for 2-14 days is known as Notice Money.

Detailed explanation-3: -Call money is any type of short-term, interest-earning financial loan that the borrower has to pay back immediately whenever the lender demands it. Call money allows banks to earn interest, known as the call loan rate, on their surplus funds. Call money is typically used by brokerage firms for short-term funding needs.

Detailed explanation-4: -Hence, the call money market is known as the interbank call money market. Surplus banks will give loans to other banks. Deficit banks that need funds will purchase it. Statement 2 is correct: Call money rate is the rate at which short-term funds are borrowed and lent in the money market.

Detailed explanation-5: -Banks, Primary Dealers (PDs), Development Finance Institutions, Insurance companies, and select Mutual Funds are currently participants in the call money market. PDs and banks can act as both borrowers and lenders in the market.