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Call Money and Notice Money Market

Introduction

The Call Money and Notice Money Market is an important segment of the Indian money market that deals with short-term funds. It is frequently asked in exams like SSC CGL, IBPS PO, SBI Clerk, and RRB NTPC under the Financial Awareness section. Understanding this market helps candidates grasp how banks and financial institutions manage their liquidity on a daily basis.

Pattern: Call Money and Notice Money Market

Pattern

This pattern tests knowledge of the short-term lending market where funds are borrowed and lent for very short durations, typically by banks and financial institutions.

Key Concept:

Call Money Market is a segment where funds are borrowed and lent for one day, while Notice Money Market deals with funds lent for a period ranging from 2 to 14 days.

Important Points:

  • Call Money = Overnight borrowing and lending of funds, usually by banks to maintain liquidity.
  • Notice Money = Short-term funds lent for 2 to 14 days with prior notice.
  • Participants = Mainly banks, financial institutions, and sometimes primary dealers.

Related Topics:

  • Money Market Instruments
  • Liquidity Adjustment Facility (LAF)
  • Reserve Bank of India’s role in money market

Step-by-Step Example

Question

In the Indian money market, the Call Money Market is characterized by which of the following features?

Options:

  • A. Funds are borrowed and lent for a period of 2 to 14 days
  • B. Funds are borrowed and lent for one day only
  • C. It is a market for long-term funds
  • D. Only non-banking financial companies participate

Solution

  1. Step 1: Understand the definition of Call Money Market

    The Call Money Market deals with funds borrowed and lent for a very short period, typically one day.

  2. Step 2: Analyze the options

    Option stating funds are borrowed and lent for one day matches the definition of Call Money Market.

  3. Step 3: Eliminate incorrect options

    Funds borrowed for 2 to 14 days refer to Notice Money Market, not Call Money Market. Long-term funds are not part of this market. Participation is mainly by banks and financial institutions, not only NBFCs.

  4. Final Answer:

    Funds are borrowed and lent for one day only → Option B

  5. Quick Check:

    Call Money Market duration = one day only ✅

Quick Variations

This pattern may appear as questions on the difference between Call Money and Notice Money, participants in these markets, or the role of RBI in regulating these markets.

Trick to Always Use

  • Remember: "Call" means immediate or overnight, so Call Money is for one day.
  • Notice Money is like giving a "notice" before borrowing, so duration is 2 to 14 days.

Summary

Summary

  • Call Money Market deals with overnight funds (1 day).
  • Notice Money Market deals with funds for 2 to 14 days.
  • Main participants are banks and financial institutions.

Remember:
Call = One day; Notice = 2 to 14 days

Practice

(1/5)
1. In the Indian money market, what is the typical duration for which funds are borrowed and lent in the Call Money Market?
easy
A. One day only
B. 2 to 14 days
C. More than 14 days
D. One month

Solution

  1. Step 1: Identify the concept

    The question tests knowledge of the duration of funds in the Call Money Market.

  2. Step 2: Apply the concept

    Call Money Market involves borrowing and lending funds for one day only, which distinguishes it from Notice Money Market.

  3. Final Answer:

    One day only → Option A

  4. Quick Check:

    Call Money Market duration = one day only ✅
Hint: "Call" means immediate or overnight lending.
Common Mistakes: Confusing Call Money with Notice Money duration.
2. Notice Money Market in India deals with funds lent for a period ranging from:
easy
A. One day only
B. 15 to 30 days
C. 2 to 14 days
D. More than 30 days

Solution

  1. Step 1: Understand the definition

    Notice Money Market involves short-term funds lent with prior notice.

  2. Step 2: Apply the concept

    The duration for Notice Money Market is from 2 to 14 days, differentiating it from Call Money Market.

  3. Final Answer:

    2 to 14 days → Option C

  4. Quick Check:

    Notice Money Market duration = 2 to 14 days ✅
Hint: "Notice" implies prior intimation before lending.
Common Mistakes: Mixing Notice Money duration with Call Money duration.
3. Who are the primary participants in the Call Money and Notice Money Markets in India?
easy
A. Foreign exchange dealers
B. Only non-banking financial companies
C. Individual investors
D. Banks and financial institutions

Solution

  1. Step 1: Identify participants

    The question tests knowledge of who participates in these short-term money markets.

  2. Step 2: Apply the concept

    Primary participants are banks and financial institutions; NBFCs and individuals do not mainly participate.

  3. Final Answer:

    Banks and financial institutions → Option D

  4. Quick Check:

    Banks and financial institutions = correct ✅
Hint: Remember, these markets are interbank and institutional in nature.
Common Mistakes: Assuming NBFCs or individuals are main participants.
4. Which of the following statements correctly differentiates Call Money Market from Notice Money Market?
medium
A. Call Money Market funds are lent overnight; Notice Money Market funds are lent for 2 to 14 days
B. Call Money Market funds are lent for 2 to 14 days; Notice Money Market funds are lent overnight
C. Both markets deal with funds lent for more than 14 days
D. Only non-banking financial companies participate in Call Money Market

Solution

  1. Step 1: Understand the difference

    Call Money Market involves overnight lending; Notice Money Market involves lending for 2 to 14 days.

  2. Step 2: Analyze options

    Option stating Call Money is overnight and Notice Money is 2 to 14 days is correct; others are factually incorrect.

  3. Final Answer:

    Call Money Market funds are lent overnight; Notice Money Market funds are lent for 2 to 14 days → Option A

  4. Quick Check:

    Call Money = overnight; Notice Money = 2 to 14 days ✅
Hint: "Call" means immediate; "Notice" means prior intimation period.
Common Mistakes: Reversing the durations of Call and Notice Money Markets.
5. In the context of Indian money markets, which institution primarily regulates the Call Money and Notice Money Markets?
medium
A. Securities and Exchange Board of India (SEBI)
B. Reserve Bank of India (RBI)
C. Ministry of Finance
D. Insurance Regulatory and Development Authority of India (IRDAI)

Solution

  1. Step 1: Identify the regulator

    The question tests knowledge of the regulatory authority for money markets in India.

  2. Step 2: Apply the concept

    Reserve Bank of India regulates money markets including Call and Notice Money Markets; SEBI regulates capital markets.

  3. Final Answer:

    Reserve Bank of India (RBI) → Option B

  4. Quick Check:

    Regulator of Call and Notice Money Markets = RBI ✅
Hint: RBI controls liquidity and short-term funds in India.
Common Mistakes: Confusing SEBI as regulator of money markets.

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