Class 12 Finance Chapter 6 Money Market

Class 12 Finance Chapter 6 Money Market Solutions English Medium As Per AHSEC New Syllabus to each chapter is provided in the list so that you can easily browse through different chapters ASSEB Class 12 Finance Chapter 6 Money Market Solutions in English and select need one. AHSEC Class 12 Finance Solutions Download PDF. HS 2nd Year Finance Textual Solutions.

Class 12 Finance Chapter 6 Money Market

Also, you can read the NCERT book online in these sections Solutions by Expert Teachers as per Central Board of Secondary Education (CBSE) Book guidelines. ASSEB Class 12 Banking Question Answer are part of All Subject Solutions. Here we have given HS 2nd Year Finance Textual Solutions English Medium for All Chapters, You can practice these here.

Money Market

Chapter: 6

Unit – 2: Money Market and Foreign Exchange Market

A. Very Short Questions Answer:

1. Write the name of the apex financial institution in the money market of a country.

Ans: The Reserve Bank of India (RBI) is the apex financial institution in the money market of India. 

B. Short Answer Questions: 

1. What is money market?

Ans: The money market is a market where short-term funds and financial instruments (up to one year) are borrowed and lent. It helps meet the short-term financial needs of individuals, businesses, and the government.

2. Write two features of money market.

Ans: (i) It deals in short-term funds and financial instruments.

(ii) It provides high liquidity and quick availability of cash.

3. What is call money market?

Ans: The call money market is a market where banks and financial institutions borrow and lend money for a very short period, usually one day (24 hours), to meet temporary cash requirements.

4. What is collateral loan market?

Ans: The collateral loan market is a market where short-term loans are granted against the security of assets such as government securities, shares, or other approved securities.

5. What is acceptance market?

Ans: The acceptance market is the market where banker’s acceptances (bills of exchange accepted by banks) are bought and sold to facilitate domestic and international trade.

6. What is bill market?

Ans: The bill market is a market where trade bills and bills of exchange are bought, sold, and discounted before their maturity to provide short-term finance to businesses.

7. Write the names of two institutions of the money market. 

Ans: (i) Financing trade: Money market plays an important role in financing both internal and international trade. The money market finances the traders through discounting of bills of exchanges. 

(ii) Financing Industry: The money market finances the short-term working capital requirements of industries through discounting of bill of exchange and commercial papers. 

9. Write two characteristics of a developed money market. 

Ans: Two characteristics of a developed money market are:

(i) Presence of a Central Bank: A developed money market has a strong central bank that provides ultimate liquidity and regulates the working of the money market.

(ii) A Well Organised Banking System: A developed money market possesses a well organised banking system in which commercial banks employ their cash reserves more economically.

10. Write two differences of money market and capital market. 

Ans: 

Basis	Money Market	Capital Market
(i) Term	Money Market provides short-term funds for a period up to one year.	Capital Market provides long-term funds for a period exceeding one year.
(ii) Nature of requirement / Purpose of loan	Money Market provides funds to meet short-term working capital requirements.	Capital Market provides funds for financing fixed capital requirements of trade and commerce and fulfils the long-term requirements of the Government.

11. Write two similarities of money market and capital market. 

Ans: Two similarities between money market and capital market are:

(i) Both are parts of the financial market and help in mobilising savings into productive investments.

(ii) Both facilitate the transfer of funds from savers to borrowers and contribute to the economic development of the country.

C. Long Answer Questions (Type-I): 

1. Write five features of money market. 

Ans: Five features of money market are:

(i) It deals in short-term funds for a period up to one year.

(ii) It provides high liquidity as the instruments can be easily converted into cash.

(iii) It deals in highly secure and low-risk financial instruments.

(iv) It helps in meeting the short-term financial requirements of trade, commerce, industry and the Government.

(v) It consists of different sub-markets such as the call money market, collateral loan market, acceptance market and bill market.

2. Write five function of money market. 

Ans: Five functions of money market are:

(i) It provides short-term finance to businesses, banks and the Government.

(ii) It helps in maintaining liquidity in the economy.

(iii) It facilitates the implementation of the monetary policy of the central bank.

(iv) It promotes trade, commerce and industry by providing working capital.

(v) It ensures the proper utilisation of surplus funds through short-term investments.

3. Write five differences of money market and capital market. 

Ans:

Points / Basis	Money Market	Capital Market
Term	Money Market provides short-term funds for a period of less than one year.	Capital Market provides long-term funds for a period exceeding one year.
Instruments	Bills of exchange, treasury bills, commercial papers, certificate of deposits, etc.	Shares, debentures, Government bonds, etc.
Institutions	Central bank, commercial banks, acceptance houses, discount houses, NBFIs, etc.	Stock exchanges, investment banks, insurance companies, commercial banks, financial institutions, etc.
Risk	The degree of risk is small in the money market.	The degree of risk is higher in the capital market.
Relation with Central Bank	The money market is closely and directly linked with the central bank of the country.	The capital market is not closely and directly linked with the central bank of the country.

4. Write five characteristics of a developed money market. 

Ans: Characteristics of a Developed Money Market (Simplified):

(i) Presence of a Central Bank: A strong central bank ensures liquidity and regulates the money market.

(ii) Well-Organised Banking System: Commercial banks work efficiently and use their cash reserves properly.

(iii) Availability of Credit Instruments: Different short-term instruments like bills of exchange, treasury bills, commercial papers, and certificates of deposit are available.

(iv) Well-Organised Sub-Markets: Different sub-markets deal in different types of short-term financial assets.

(v) Integrated Money Market: All sub-markets are closely connected and work together smoothly.

(vi) Adequate Resources: Enough funds are available to finance money market transactions.

(vii) Specialised Institutions: Institutions like acceptance houses and discount houses help in dealing with short-term financial assets.

(viii) Uniform Interest Rates: Interest rates remain almost the same in different parts of the country.

5. Write about five institution of money market. 

Ans: (i) Central Bank: The central bank regulates and controls the money market. It provides liquidity and supervises the banking system.

(ii) Commercial Banks: Commercial banks are the main participants in the money market. They accept deposits and provide short-term loans.

(iii) Acceptance Houses: Acceptance houses accept and guarantee bills of exchange, making them more secure and easily tradable.

(iv) Discount Houses: Discount houses buy and sell short-term securities such as bills of exchange before their maturity, providing liquidity to the market.

(v) Non-Banking Financial Institutions (NBFIs):  NBFIs provide short-term finance and invest in money market instruments, helping businesses meet their financial needs.

D. Long Answer Questions (Type-II): 

1. What is money market? State the features of money market. 

Ans: Meaning of Money Market: The Money Market is a segment of the financial market where short-term funds and financial instruments with a maturity period of less than one year are borrowed and lent. It helps individuals, businesses, banks, and the government meet their short-term financial requirements.

Features of Money Market:

(i) It deals in short-term funds with a maturity period of less than one year.

(ii) It provides high liquidity as the instruments can be easily converted into cash.

(iii) It deals in highly liquid financial instruments such as Treasury Bills, Commercial Papers, Certificates of Deposit, and Bills of Exchange.

(iv) The degree of risk is low because of the short maturity period.

(v) It helps in maintaining liquidity in the economy.

(vi) The Central Bank plays an important role in regulating and controlling the money market.

(vii) It provides quick and easy access to short-term finance for banks, businesses, and the government.

(viii) It is an organized financial market that facilitates the efficient flow of short-term funds.

2. What is money market? State about the institutions of the money market. 

Ans: The Money Market is a segment of the financial market where short-term funds and financial instruments with a maturity period of less than one year are borrowed and lent. It helps individuals, businesses, banks, and the government meet their short-term financial requirements.

Institutions of the Money Market:

(i) Central Bank: It regulates and controls the money market and provides liquidity to the banking system.

(ii) Commercial Banks: They accept deposits, provide short-term loans, and deal in money market instruments.

(iii) Acceptance Houses: These institutions accept and guarantee bills of exchange, making them more secure and marketable.

(iv) Discount Houses: They buy and sell short-term securities such as treasury bills and bills of exchange by discounting them.

(v) Non-Banking Financial Institutions (NBFIs): These institutions provide short-term financial services and invest in money market instruments.

(vi) Financial Institutions: They participate in the money market by borrowing and lending short-term funds to meet liquidity needs.

3. What is money market? Explain the various sub-market of the money market. 

Ans: The Money Market is a segment of the financial market where short-term funds and financial instruments with a maturity period of less than one year are borrowed and lent. It helps individuals, businesses, banks, and the government meet their short-term financial requirements.

Various Sub-markets of the Money Market:

(i) Call Money Market: It deals with very short-term loans (generally for one day) between banks and financial institutions.

(ii) Treasury Bill Market: It deals in Treasury Bills issued by the Government to meet short-term financial needs.

(iii) Commercial Bill Market: It deals in bills of exchange accepted by banks and used for financing trade.

(iv) Commercial Paper Market: It deals in unsecured short-term promissory notes issued by companies to raise funds.

(v) Certificate of Deposit (CD) Market: It deals in certificates issued by commercial banks and financial institutions for a fixed period.

(vi) Repo Market: It deals with short-term borrowing through the sale and repurchase of government securities.

4. What is Money Market? State the differences between Money Market and Capital Market.

Ans: Meaning of Money Market: The Money Market is a segment of the financial market where short-term funds and financial instruments with a maturity period of less than one year are borrowed and lent.

Differences between Money Market and Capital Market:

Basis	Money Market	Capital Market
Term	Provides short-term funds for a period of less than one year.	Provides long-term funds for a period exceeding one year.
Instruments	Bills of Exchange, Treasury Bills, Commercial Papers, Certificates of Deposit, etc.	Shares, Debentures, Government Bonds, etc.
Institutions	Central Bank, Commercial Banks, Acceptance Houses, Discount Houses, NBFIs, etc.	Stock Exchanges, Investment Banks, Insurance Companies, Commercial Banks, Financial Institutions, etc.
Risk	The degree of risk is low.	The degree of risk is higher.
Relation with Central Bank	Closely and directly linked with the Central Bank.	Not closely and directly linked with the Central Bank.

5. Discuss the functions and importance of the money market. 

Ans: Functions of the Money Market:

(i) Provides Short-term Funds: It provides short-term finance to businesses, banks, government, and other institutions.

(ii) Maintains Liquidity: It ensures adequate liquidity in the financial system.

(iii) Facilitates Trade and Commerce: It provides working capital required for smooth business operations.

(iv) Mobilises Idle Funds: It collects surplus funds from investors and channels them to borrowers.

(v) Assists Monetary Policy: It helps the Central Bank in implementing and controlling monetary policy.

(vi) Promotes Economic Development: It ensures the efficient use of short-term funds, thereby supporting economic growth.

Importance of the Money Market:

(i) It meets the short-term financial needs of borrowers.

(ii) It provides a safe and liquid investment avenue for investors.

(iii) It helps maintain stability in the financial system.

(iv) It promotes smooth functioning of banks and financial institutions.

(v) It facilitates effective implementation of monetary policy.

(vi) It contributes to the overall growth and development of the economy.

6. Discuss the characteristics of a developed money market. 

Ans: Characteristics of a Developed Money Market:

(i) Presence of a Central Bank: A strong Central Bank regulates the money market, controls liquidity, and acts as the lender of last resort.

(ii) Well-organised Banking System: A developed money market has an efficient and well-organised commercial banking system.

(iii) Availability of Credit Instruments: It deals in a wide variety of short-term financial instruments such as Treasury Bills, Commercial Papers, Bills of Exchange, and Certificates of Deposit.

(iv) Existence of Specialised Financial Institutions: Institutions such as discount houses, acceptance houses, and non-banking financial institutions support the smooth functioning of the money market.

(v) Highly Developed Commercial System: A developed trade and commerce system increases the demand for short-term finance.

(vi) Integrated Sub-markets: Different sub-markets are closely connected and function in a coordinated manner.

(vii) Efficient Transfer of Funds: Funds move quickly from surplus units to deficit units with minimum delay and cost.

(viii) Stable Political and Economic Conditions: Political stability and a sound economic environment help the money market function efficiently.