BANKING AND MONETARY POLICY — Economics STD 12 Commerce — Question

Inter-banking transactions: A bank can provide short or long term credit in the form of leans or advance to the other bank as and when required. Short term credit is provided by one bank to another through central bank and is called ‘call money’ and the interest rate of call money is called ‘call money rate’ In other words, call money are funds borrowed and lent by one bank to other. These loans are very short term in nature and usually lasts not more than 1 week. The main reason for call money between banks is mostly to meet reserve requirement.