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International Experiences as regards Call Money Market

Discuss International Experiences as regards Call Money Market within the Financial Management ( FM ) forums, part of the Resolve Your Query - Get Help and discuss Projects category; International Experiences USA Federal funds market in USA is the counterpart of our call/notice money market in India. In this ...

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International Experiences as regards Call Money Market
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Sunanda K. Chavan
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International Experiences as regards Call Money Market - September 16th, 2010

International Experiences

USA

Federal funds market in USA is the counterpart of our call/notice money market in India. In this market, only those depository institutions that are required by the Monetary Control Act of 1980 to hold reserves with the Federal Reserve Banks are permitted to borrow. These include commercial banks, savings banks, savings and loan associations and credit unions.

Non-bank participants such as corporates, state and local governments are prohibited from participating in the federal funds market directly. They supply funds to the overnight market through repurchase agreements (RPs) with their banks. Banks' borrowings from federal funds market as well as from RPs are free of reserve requirements.

It is found that RP rates closely follow the federal funds rate with the former being lower than the latter as RP market is collateralised and, therefore, safer than the federal funds market and RP involves additional transaction costs in the form of documentation.

It was found that as resources raised under RPs were free of reserve requirements, banks attempted to minimise their burden of reserve requirements by raising more resources through the RP avenue vis-a-vis deposits thereby reducing the volume of required reserves banks had to hold with the Federal Reserve Banks.

This in turn reduced the size of the Federal Reserve Banks' balance sheet and, therefore, reduced the interest payments that it could transfer to the US Government. In order to obviate this situation, the Federal Reserve Board passed a resolution in 1969 restricting the collateral to be used for RPs to only direct obligations of the US Government or its agencies. This somewhat offset the revenues that are likely to be lost due to reduced volume of reserves held by banks.

France

Initially, some non-bank entities were allowed in the money market, which were able to obtain a market rate of return on their investments. These non-bank entities included insurance companies, pension funds, stock brokers' Boards etc.

In order to encourage the spread of negotiable securities among the public as well as to restrict the access to the market for "central bank money", the authorities favoured the creation of a pure inter-bank money market accessible only to credit institutions.

The non-bank entities who are no longer part of the inter-bank money market have moved to the repo market as well as sales of negotiable securities as part of their short-term liquidity management.

The authorities felt that this sort of restructuring of the market should help in fostering development of short-term securities in the economy. Among emerging economies also, overnight money markets in countries like Singapore, Malaysia and Thailand have only banks as participants.
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Rose Marry
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Re: International Experiences as regards Call Money Market - April 13th, 2016

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Originally Posted by sunandaC View Post
International Experiences

USA

Federal funds market in USA is the counterpart of our call/notice money market in India. In this market, only those depository institutions that are required by the Monetary Control Act of 1980 to hold reserves with the Federal Reserve Banks are permitted to borrow. These include commercial banks, savings banks, savings and loan associations and credit unions.

Non-bank participants such as corporates, state and local governments are prohibited from participating in the federal funds market directly. They supply funds to the overnight market through repurchase agreements (RPs) with their banks. Banks' borrowings from federal funds market as well as from RPs are free of reserve requirements.

It is found that RP rates closely follow the federal funds rate with the former being lower than the latter as RP market is collateralised and, therefore, safer than the federal funds market and RP involves additional transaction costs in the form of documentation.

It was found that as resources raised under RPs were free of reserve requirements, banks attempted to minimise their burden of reserve requirements by raising more resources through the RP avenue vis-a-vis deposits thereby reducing the volume of required reserves banks had to hold with the Federal Reserve Banks.

This in turn reduced the size of the Federal Reserve Banks' balance sheet and, therefore, reduced the interest payments that it could transfer to the US Government. In order to obviate this situation, the Federal Reserve Board passed a resolution in 1969 restricting the collateral to be used for RPs to only direct obligations of the US Government or its agencies. This somewhat offset the revenues that are likely to be lost due to reduced volume of reserves held by banks.

France

Initially, some non-bank entities were allowed in the money market, which were able to obtain a market rate of return on their investments. These non-bank entities included insurance companies, pension funds, stock brokers' Boards etc.

In order to encourage the spread of negotiable securities among the public as well as to restrict the access to the market for "central bank money", the authorities favoured the creation of a pure inter-bank money market accessible only to credit institutions.

The non-bank entities who are no longer part of the inter-bank money market have moved to the repo market as well as sales of negotiable securities as part of their short-term liquidity management.

The authorities felt that this sort of restructuring of the market should help in fostering development of short-term securities in the economy. Among emerging economies also, overnight money markets in countries like Singapore, Malaysia and Thailand have only banks as participants.
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