Composition Of The Money Market

Composition Of The Money Market – Acceptance Market

The money market is not a single homogenous market, the set up consists of all the Composition Of the Money Market, the market is composed of several sub market each that have the responsible of transacting in all the different types of short term credit. To say this is to add a word of caution that it depends on the environment and on the stage of financial and economic development of the country concerned.

Composition Of The Money Market

Nevertheless, when considering the most important components common to the most money market set up includes,

1. The call money market – This refers to the market for extremely short period loans. bills brokers (in essence those who buy bills) and dealers in the stock exchange and perhaps the banks often requires financial accumulation for short period to finance their customers trading on marking and their own holdings of securities. Such money advanced by banks is lent for periods between one day and seven days. But more often it is lend on a day to day or on overnight basis. These loans are referred to as call loans or call money since the banks can recall them at the short cost possible notice.

The attraction in call loans for banks rest on the fact that first, they can be converted to cash at any time hence they approximate cash and banks thus regard them as secondary reserve. Secondly, unlike cash, they yield some form of income to the banks. The call money market with the commercial banks as lenders and the brokers and dealers as borrowers has always been a very important segment of the money market.

1. Acceptance Market – This refers to the market for bankers acceptance, which arises out of trade both domestic and international transactions. As one of the Composition Of The Money Market, the acceptance market is quite important. In Abuja money market for instance, there exist specialist firms known as acceptance house, which accept and discount bills drawn on them by trader instead of drawing on the true debtors. The bills accepted or guaranteed by well known acceptance houses or banks can easily be sold or discounted in the market. The prominence of this market is declining in advanced economies.
2. The bills Market – This market is otherwise known as the discount market. It refers to the market for the exchange of short dated paper or bills. Previously it was the commercial bill that was prominent in the finance of both internal and international trade. Recently, it is the treasury bills market, which has assumed the most important part of the money market the world over.

Note this fact clearly states that these different markets described above as components of the market can in fact be combined into one as is often the case in developing economies which does not distinguish between the call money market, acceptance market or the bills market. The borrowers in the cell money market are invariably those who deal in the discount market. Besides the acceptance of bills in the acceptance market naturally leads to the discount of bills which is the discount market thus all the three sub markets of the money market and designated as the discount market. Currently, there is a programme for the setting up of discount houses in Nigeria by the central banks of Nigeria.

Above and over all these institutions of the money market, there is the central bank of the country which, as the ultimate authority and controller of monetary and credit institutions in the country is the accepted leader of the money market, the central bank has the responsibility to control and guide the institutions of the money market with its quantitative and qualitative weapon.