Meaning of Money Market:

The money market refers to a part of the financial market where short-term lending and borrowing of funds takes place. It deals with financial instruments with high liquidity and short maturities, that is less than one year. The member participants in the money market are banks, financial institutions, corporations, governments, and the instruments of money market include treasury bills, commercial paper, certificates of deposit, repurchase agreements, and short-term bonds. The features of money market is facilitating liquidity and financing facilities for various participants in the economy.

The structure of money market includes:

1. Organized money market.

2. Unorganized money market.

Organized money market means the presence of Central Bank, all scheduled commercial banks, Cooperative banks, and financial institutions like Life insurance corporation , General insurance corporation, Foreign exchange bank etc.

Unorganized money market refers to a part of the financial system where lending and borrowing of short-term funds take place outside the regulated banking sector. This type of money market includes indigenous bankers, moneylenders, traders, merchants, landlords, pawn brokers, chit funds etc.

The features of unorganized money market are:

1. Informal Structure: The organized money market comprises of regulated institutions like banks and financial intermediaries etc. and it operates informally without a centralized power. Transactions often occur between individuals, small businesses, and informal lenders.
2. Lack of Regulation: There is minimum or no regulation which controls the activities in the unorganized money market. Participants dealing in transactions mostly based on mutual agreements without any relation from regulatory control.
3. Multiple Participants: The participants in the unorganized money market are different and include individuals, small businesses, moneylenders, pawnbrokers, and other non-banking financial institutions. These participants often have different risks and creditworthiness.
4. Short-term loans: Transactions in the unorganized money market mostly involve short-term lending and borrowing arrangements. Loans are often provided for short period start from a few days to a few months.
5. Rate of Interest: Rate of interest in the unorganized money market will be higher compared to organized market. This is due to the higher risk associated with lending to borrowers who may have limited creditworthiness.
6. Collateral-based Lending: Many transactions in the unorganized money market are collateralized, meaning borrowers provide assets or valuables as security against the loan. This helps mitigate the risk for lenders in case of default.
7. Lack of Transparency: The unorganized money market lacks transparency in terms of pricing, transactions, and overall market conditions.
8. Local or Regional Focus: The unorganized money market often functions at the local or regional level, with transactions takes place through personal relationships, trust, and familiarity among participants.
9. Limited Access to Formal Credit: Participants in the unorganized money market often have limited access to formal credit channels such as banks due to factors like lack of credit history, documentation, or the inability to meet formal lending requirements.
10. Exploitation: In the unorganized money market, particularly borrowers those with less financial knowledge or facing urgent financial needs, may be exploited by lenders who charge interest rates or impose unfair terms and conditions on the borrowers.

also read: explain the components of money market.