What is Money-at-Call?
Money-at-call is any type of short-term, interest-earning financial loan that the borrower has to payback immediately when the lender demands.
Key Takeaways
- Money-at-call is any type of short-term, interest-earning financial loan that the borrower has to pay back immediately when the lender demands.
- Money-at-call gives banks a way to earn interest, known as thecall-loan rate, while retaining liquidity and, after cash, it is the most liquid asset on their balance sheet.
- Aside from generating interest, money-at-call's true value is in providing banks the opportunity to profit from surplus funds and maintain properliquiditylevels.
Understanding Money-at-Call
Money-at-call, also known as call money or "at call money," is any financial loan that is payable immediately and in full when the lender, usually a bank, demands it. Typically, it is a short-term, interest-paying loanfrom one to 14 days made by afinancial institution to another financial institution. Due to the short-term nature of the loan, it does not typically feature regular principal and interest payments, which longer-term loans might.
Typical money-at-call loans do not have set repayment schedules, and the interest rate on such loans is called thecall-loan rate. Money-at-call gives banks a way to earn interest while retaining liquidity, and, after cash, it is the most liquid asset on their balance sheet. Investors might use money-at-call to cover amargin account.
Participants inmoney-at-call markets include banks, Primary Dealers (PDs), development finance institutions, insurance companies, and select mutualfunds. Banks and PDs can operate both asborrowersand lenders in the market. A bank might require money at call funding when the difference in the maturity of theirrate-sensitive assets and liabilities creates a gapin available funding.
Money-at-call differs from "short notice money," which is similar but does not require immediate payment when called. Rather, there is a time range of up to 14 days that the lender has to pay back the loan. "Short notice money" is also considered to be a liquid asset that trails cash and money-at-calls in terms of the degree of liquidity. Aside from generating interest, money-at-call's true value is in providing banks the opportunity to profit from surplus funds and maintain properliquiditylevels.
Money-at-call is an important component of themoney markets. It has several special features, including as an extremely short period funds management vehicle, as an easily reversible transaction, and as a means to manage a balance sheet. The transaction cost is low, in that it is done bank-to-bank without the use of a broker. Ithelps to smooth the fluctuations and contributes to the maintenance of proper liquidity andreserves, as required by regulations. It also allows the bank to hold a higher reserve-to-deposit ratio than would otherwise be possible, allowing for greater efficiency and profitability.
Other Types of Money-at-Call
Many different types offinancial instrumentscan be "called" or declared payable immediately. Short-term lending by banks is callable by the lender. However, many money-at-call instruments are callable by the borrower. The most notable is acallable bond.
Many types of bonds can be called, or be required to be redeemed before maturity, and this provision is written in the bond'sindentureandprospectus. These bonds usually have a period when they are not callable, but then switch to callable for the rest of the life of the bond. For example, a 30-year bond may have a 10-year call feature, meaning the bond becomes callable after 10 years. Typically, the bondholder receives a premium above theparvalue, orface value, of the bond.
Otherfixed-income securities, such ascertificates of deposit, may also have call features. Even common andpreferred stockmay have call features if a company wants the option to buy back its shares at a certain price.
How Money at Call Works
For example, brokerage Firm A wants to buy some shares of Company X. Firm A plans to buy a few thousand shares of Company X on behalf of their client, but the client wants to buy the shares on margin and agrees to pay Firm A for them in 12 days.
Firm A believes that their client will be good for the money, so it covers its costs for the purchase of the shares by borrowing money-at-call from Bank XYZ. Because Firm A expects to complete the transaction quickly, Bank XYZ does not set up a payment schedule but reserves the right to call the loan at any time. If Bank XYZ calls the loan before the 12 days up, Firm A can collect the money by issuing a margin call to its client.
FAQs
Money-at-call, also known as call money or "at call money," is any financial loan that is payable immediately and in full when the lender, usually a bank, demands it. Typically, it is a short-term, interest-paying loan from one to 14 days made by a financial institution to another financial institution.
What is the meaning of money call? ›
Call money is any type of short-term, interest-earning financial loan that the borrower has to pay back immediately whenever the lender demands it. Call money allows banks to earn interest, known as the call loan rate, on their surplus funds. Call money is typically used by brokerage firms for short-term funding needs.
What is the call money process? ›
'Call Money' is the borrowing or lending of funds for 1day. Where money is borrowed or lend for period between 2 days and 14 days it is known as 'Notice Money'. And 'Term Money' refers to borrowing/lending of funds for period exceeding 14 days.
What is money at call short notice meaning? ›
'At call' money is repayable on demand, whereas 'short notice' money implies that notice of repayment of up to 14 days will be given. After cash, money at call and short notice are the banks' most liquid assets.
What is an example of call money? ›
Call Money Example
Bank B, having excess funds, is willing to lend to Bank A through the notice money market. Bank A contacts Bank B and requests a notice money loan. They agree on the terms, such as the loan amount, interest rate, and duration.
How do you use call money? ›
Investors pay the call money rate to the broker, who then pays it back to the bank that finances the loan. Investors also pay their broker an additional service charge for the loan. This additional fee is usually a percentage of the loan amount.
What is at the money in call option? ›
An At-the-money call option is described as a call option whose strike price is approximately equal to spot price of the underlying assets (i.e. Strike price=Spot price). Hence, NIFTY FEB 8300 CALL would be an example of At-the-money call option, where the spot price is Rs 8300.
What are the advantages of call money? ›
Now let's look at some of the advantages of call money market, which are as follows: Because lending expenses are more volatile in this sector, they can be returned. It is conceivable to have financial intermediaries and transfer funds. It provides a lucrative space for the leftover money.
What is the difference between in-the-money and out the money call? ›
For example, a call option with a strike price of $132.50 would be considered ITM if the underlying stock is valued at $135 per share because the strike price has already been exceeded. A call option with a strike price above $135 would be considered OTM because the stock has not yet reached this level.
Who can issue call money? ›
The participants in the call money market are-scheduled commercial banks, non-scheduled commercial banks, foreign banks, state, district and urban cooperative banks, brokers and dealers in the securities market, and primary dealers.
On payment of the First and Final Call money in respect of the Rights Equity Shares, the partly paid up Equity Shares shall be converted into fully paid-up Equity Shares and would be credited to the existing ISIN No.
What is the difference between call money and repo? ›
In the case of the call money rate, banks lend and borrow funds without any collateral, while in the case of the repo rate, banks borrow funds by pledging government securities as collateral. The repo rate is usually higher than the call money rate as it involves collateral and is considered a safer form of lending.
What is the money at call policy? ›
Call money is also referred to as the money at call. It is a short-term loan which is due to be paid immediately in full as and when demanded by the lender. Not similar to a term loan, call money loan does not have a defined schedule of payment and maturity.
What is a cash call in business? ›
Cash calls are requests for funds from the managing partner of a joint venture to the partners of the joint venture. The funds ensure that the managing partner can manage the joint venture's cash flow for the expenses associated with the joint venture.
How often do banks call loans? ›
Theoretically banks have every right to call loans anytime, practically arbitrarily, as stated in the loan facility letter. In reality, loan recall is extremely rare so long as one repays on time and fulfils the terms of agreement.
What is the difference between call money and put money? ›
Call options provide the right to buy an asset. Traders buy call options when they anticipate a rise in the asset price. Put options offer the right to sell an asset, Traders buy them when they anticipate a decline in asset price. Call options are suitable for the bullish markets.
What does it mean to call in a loan? ›
A call loan is a loan that the lender can demand to be repaid at any time. A call loan is similar to a callable bond. However, while a callable bond is callable by the borrower, a callable loan is callable by the lender. A call loan is designed to reduce the financial risk of the lender.
