The money market forms a medium, where the central bank of an economy comes in contact with the entire financial system as well as determines the cost and availability of credit required by the financial institutions for proper functioning. As the Chinese economy is undergoing a number of reforms with the passage of time, number of members in the money markets is also rising. The once concentrated money markets have now expanded to include not only state-owned commercial banks and joint stock commercial banks, but also the local banks, foreign funded banks, financial companies, cooperatives and fund management companies. The following chart shows the rise in number of institutions in the financial markets.As the number of institutions under ambit of the money market is growing, overall economic development of the nation is largely dependent on buoyant performance of these institutions. This topic has provided a comprehensive view on enhancement of all sectors in the money market of China. This can be useful to understand the current scenario in the money market of China, which affects decision making of the overall financial system. The various limitations and possible sources of improvement are discussed in the essay.This is one of the core components of the money market. This market is characterized by short-term lending and borrowing between the financial institutions by means of credit, with or without collateral. In the initial years, this was not a very popular tool for managing reserves due to lack of other financial instruments in the monetary and capital markets. The most common practice then was lending and borrowing in order to match the surplus or deficit in the medium and long-term funds. It was during 1993 that lending and borrowing between the financial institutions had come under pressure due a rise in the number of borrowing of non-financial institutions like, investment companies and trust of the commercial banks (Duo, 2000). During this time, in order to avoid the credit ceiling management, interbank lending and borrowing became popular. Since the introduction of reforms in the monetary market in China, two major changes have been experienced in the interbank market. The first major change has been to specify all members that are eligible to conduct trading in this market and they can conduct trading only through electronic trading system. The second major change is that the central bank has reduced maturity
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