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What is a Call Money Market?

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  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 06 September 2014
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The call money market is a mechanism that allows both dealers and brokers to locate and borrow funds that can be used for investment needs. The funds located through the money market can be utilized to provide financing for the purchase of securities that can be added to the portfolio of the investment firm, or as a resource that will cover the margin accounts of the firm’s clients.

As a means of securing financing for credit needs, the call money market provides a range of options. Chief among them is the ability to create and manage what is referred to as a call money loan. The call money loan essentially works in the same manner as a day to day loan. Call money loans provide funds that can be used to conduct transactions between banks, or with other money market dealers. Generally, these types of loans are paid off in a short period of time, allowing the broker to move on to secure new loans and continue to process orders on behalf of their clients. The loans may be secured or unsecured, depending on the terms and conditions of the loan, along with the duration and the credit rating of the debtor.

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Individual investors generally do not participate directly in the call money market. Instead, the investor will work through a brokerage firm. The broker will determine the best avenue to take in financing an investment, based on the individual circumstances of the client. This process is actually to the advantage of the investor, since the broker will be aware of sources of funding that may or may not be readily accessible to individuals who are looking for financial support to build a portfolio.

The call money market crosses international lines, with funding opportunities located in a number of countries around the world. Because of the inclusion of international banking institutions, the role of the brokerage firm becomes even more vital to the individual investor. Brokers will be aware of applicable banking laws, and how those laws could impact the transaction. This knowledge regarding participants in the call money market allows the firm to pick and choose among possible avenues for funding with a level of efficiency that would be difficult for the individual.

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anon166054
Post 3

I would say call money is dominated by commercial banks. They use call money for borrowing as well as lending.It is used basically for overnight requirements by banks.

anon163550
Post 2

I just came across this article in the process of informing myself on the topic of call and notice modules. I really wonder there isn't any exact definition being defined for call money. (you know the basic purpose of call money, players in it, duration etc.)

I feel that those points have to be certainly added during the discussion. Thanks, Shankara

BrickBack
Post 1

I usually don’t like to buy any investments on margin. I would rather set aside funds to invest directly than using my money market funds to help me do that. I like to use my money market as an account that I can draw on if I need to pay any immediate bills.

I feel that if I have to borrow money to invest, not only do my returns have to be higher to compensate for the interest charged on the loan, but I always feel that it does not make sense to go into debt in order to invest.

Investments should growth your wealth not take away from it. To me it does not matter how short term the loan is. There are also many people that used to take out home equity lines of credit in order to invest in the stock market which I also do not agree with.

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