finance Finance refers to monetary resources and to the study and Academic discipline, discipline of money, currency, assets and Liability (financial accounting), liabilities. As a subject of study, is a field of Business administration, Business Admin ...

, call money is any minimum short-term

loan In finance, a loan is the tender of money by one party to another with an agreement to pay it back. The recipient, or borrower, incurs a debt and is usually required to pay interest for the use of the money. The document evidencing the deb ...

repayable on demand, with a maturity period of one to fourteen days or overnight to a fortnight. It is used for inter-bank transactions. The money that is lent for one day in this market is known as "call money" and, if it exceeds one day, is referred to as "notice money." Commercial banks have to maintain a minimum cash balance known as the

cash reserve ratio In economics, cash is money in the physical form of currency, such as banknotes and coins. In book-keeping and financial accounting, cash is current assets comprising currency or currency equivalents that can be accessed immediately or near-imm ...

. Call money is a method by which banks lend to each other to be able to maintain the cash reserve ratio. The

interest rate An interest rate is the amount of interest due per period, as a proportion of the amount lent, deposited, or borrowed (called the principal sum). The total interest on an amount lent or borrowed depends on the principal sum, the interest rate, ...

paid on call money is known as the call rate. It is a highly volatile rate that varies from day to day and sometimes even from hour to hour. There is an inverse relationship between call rates and other short-term

money market The money market is a component of the economy that provides short-term funds. The money market deals in short-term loans, generally for a period of a year or less. As short-term securities became a commodity, the money market became a compo ...

instruments such as certificates of deposit and

commercial paper Commercial paper, in the global financial market, is an Unsecured debt, unsecured promissory note with a fixed Maturity (finance), maturity of usually less than 270 days. In layperson terms, it is like an "IOU" but can be bought and sold becaus ...

. A rise in call money rates makes other sources of finance, such as commercial paper and certificates of deposit, cheaper in comparison for banks to raise funds from these sources. In the international market, the term usually refers to the short-term financing by banking institutions to brokers for maintaining the margin account. It is different from the term "loan" as the schedule for the payment of

interest In finance and economics, interest is payment from a debtor or deposit-taking financial institution to a lender or depositor of an amount above repayment of the principal sum (that is, the amount borrowed), at a particular rate. It is distinct f ...

and principal is not fixed. Since the loan can be called at any time, it is riskier than other forms of loans. It helps in meeting

liquidity Liquidity is a concept in economics involving the convertibility of assets and obligations. It can include: * Market liquidity In business, economics or investment, market liquidity is a market's feature whereby an individual or firm can quic ...

needs at short notice.https://investinganswers.com/dictionary/c/call-money Call money is a very short-term bank loan

References

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