• Nominal Deficit
  • Notice Money
  • Notice Money

    DEFINITION OF 'Notice Money'

    When banks and other financial entities participating in money market borrow and lend funds from each other for  a period between 2 days and 14 days, then it is called Notice Money.

    Explanation

    To meet their short term mismatches in fund positions the participants in the money market borrow and lend from each other on unsecured basis.This borrowing can be for 1 day(overnight), for 2 to 14 days, or more than 14 days. When the borrowing and lending is done for 1 day it is called call money, when it is for 2 to 14 days it is called notice money, and for more than 14 days it is called term money.

    Typically money market is a market for short term borrowing and lending where participants borrow and lend funds for a period of less than 1 year. The particiapnts in money markets include banks, primary dealers and even government and central banks.

    The rate of interest on such borrowings are very volatile and keeps on changing. Most volatile of them is the call rate (interest charged on call money) which may even vary from hour to hour.

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