CHAPTER: - 9 MONEY MARKET AND CAPITAL MARKET OF INDIA Q.8. Answer in detail: 1. Explain the role of the money market in India.

Balbharati solutions for Economics HSC 12th Standard Maharashtra State Board

CHAPTER: - 9 MONEY MARKET AND CAPITAL MARKET OF INDIA

Q.8. Answer in detail:

1. Explain the role of the money market in India.

The following points outline the role of the money market in India :

Short-term requirements of borrowers: Money market provides reasonable access for meeting the short-term financial needs of the borrowers at realistic prices.

Liquidity Management: Money market is a dynamic market. It facilitates better management of liquidity and money in the economy by the monetary authorities. This, in turn, leads to economic stability and development of the country.


Portfolio Management: Money market deals with different types of financial instruments that are designed to suit the risk and return preferences of the investors. This enables the investors to hold a portfolio of different financial assets which in turn, helps in minimizing risk and maximizing returns.


Equilibrating mechanism: Through the rational allocation of resources and mobilization of savings into investment channels, the money market helps to establish equilibrium between the demand for and supply of short-term funds.

Economizes the use of cash: Money market deals with various financial instruments that are close substitutes of money and not actual money. Thus, it economizes the use of cash.

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