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What is Money at Call?

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  • Written By: Jim B.
  • Edited By: M. C. Hughes
  • Last Modified Date: 23 August 2016
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Money at call refers to any type of money loaned from one party to another that must be returned to the borrower immediately upon demand. Since the borrower can call back the money at any moment, the lender must always be ready to provide the funds. Banks are the most common issuers of money at call through short-term loans to institutional brokers, investors, and other banks. Bonds and certificates of deposit may also be called back by the issuer, meaning that the holder of the bond must redeem the remaining principal and interest immediately.

Most loans have set terms which allow the borrower to prepare payments of principal and interest back to the borrower. At the conclusion of the term of a typical loan, these payments must be complete, or else the borrower has defaulted and usually must pay some sort of penalty. But there are other short-term loans available to major financial players known as demand loans. The money that changes hands in such loans is money at call, since the lender has the option to call the money back.

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Banks issue demand loans and offer money at call more than any institution. Since the bank can redeem the loans at any time and recoup the money, demand loans are considered to be among the most liquid assets a bank can have. As a result, they are extremely useful to banks that must be careful to maintain cash levels as required by financial laws. If a bank is struggling to reach a certain level, a demand loan can be called back and give the bank a quick infusion of funds.

The receivers of money at call are generally investors that need the money in a hurry to make a short-term investment. Such loans must be secured, generally by margin requirements that require brokers and investors to have a certain amount of money in reserve before a bank will issue a demand loan. These investors generally know that their investments will come to fruition in a relatively short time, thus allowing them to cover the loans when they are called back.

There are also bonds and certificates of deposit that may be called back by issuers. This is a reversal of the usual process of money at call, since the party with the option to call back is actually the borrower. Bonds, for example, are loans from investors to issuers. A bond with a call option, however, allows the issuer to demand that the investor redeem the bond immediately. When this occurs, the issuer will pay off the investor with the principal of the bond and any remaining interest obligations.

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shambavi
Post 1

How can a demand loan in notice money be repaid by the borrower? Will he borrow again from another lender? Will there be an intermediary?

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