2. MONEY MARKET
Money market instruments are those
instruments, which have a maturity period of less
than one year.
Geoffrey Crowther in his book” An outline of
Money” has stated “Money market is a collective
name given to the various firms and institutions
that deal with various grades of near money”.
Reservoir of short term funds.
3. Characteristics of a
developed money market.
A developed commercial banking system.
Presence of a central bank.
Sub-markets
Near money assets
Availability of ample resources
Integrated interest rate structure
4. Functions of money market
Economic development – Money market
assures supply of funds; financing is done
through discounting of the trade
bills, commercial banks, acceptance houses
and brokers.
Profitable Investment – the excess reserves of
commercial banks invested in near money
assets.
Borrowings by the Government – short term
funds at very low interest.
5. Importance For Central Bank – If the money
market is well developed, the central bank
implements the monetary policy successfully.
Mobilization of Funds – helps in transferring
funds from one sector to another.
Savings And Investment – encouraging savings
and investment by promoting liquidity and
safety of financial assets.
Self-sufficiency Of Commercial Banks –
commercial banks can meet their financial
requirements by recalling some of their loans.
6.
7. MONEY MARKET
INSTRUMENTS
Investment in money market is done through
money market instruments.
Money market instrument meets short term
requirements of the borrowers and provides
liquidity to the lenders
The most active part of the money market is the
market for overnight call and term money
between banks and institutions and repo
transactions
8. 1.GOVERNMENT SECURITIES
(G- Secs)
Issued by the Government for raising a public
loan or as notified in the official Gazette.
Maturity ranges from of 2-30 years.
G-secs consist of Government Promissory Notes,
Bearer Bonds, Stocks or Bonds, Treasury Bills or
Dated Government Securities.
No default risk as the securities carry sovereign
guarantee.
Ample liquidity as the investor can sell the
security in the secondary market
9. 2. MONEY MARKET AT CALL AND
SHORT NOTICE
Money at call is a loan that is repayable on
demand, and money at short notice is repayable
within 14 days of serving a notice.
Participants are banks & all other Indian
Financial Institutions as permitted by RBI.
Banks borrow call funds for a variety of reasons to
maintain their CRR, to meet their heavy
payments, to adjust their maturity mismatch etc.
10. 3. TREASURY BILLS
Short term (up to one year) borrowing
instruments of the Government of India.
Enable investors to park their short term surplus
funds while reducing their market risk.
Issued at a discount to face value. The return to
the investor is the difference between the
maturity value and issue price.
RBI issues T-Bills for three different maturities: 91
days, 182 days and 364 days
11. 4. CERTIFICATES OF
DEPOSITS
A CD is a time deposit, financial product
commonly offered to consumers by banks.
CDs are negotiable instrument.
Financial Institutions are allowed to issue CDs for
a period between 1 year and up to 3 years.
normally give a higher return than Bank term
deposit, and are rated by approved rating
agencies.
12. 5.COMMERCIAL BILLS
Commercial bill is a short term, negotiable, and
self-liquidating instrument with low risk.
Written instrument containing an unconditional
order.
Once the buyer signifies his acceptance on the bill
itself it becomes a legal document.
Commercial bill is a short term, negotiable, and
self-liquidating instrument with low risk.
13. 6. COMMERCIAL PAPER
Commercial Paper is a money-market security
issued (sold) by large banks and corporations to
get money to meet short term debt obligations .
Commercial paper is usually sold at a discount
from face value.
Interest rates fluctuate with market
conditions, but are typically lower than banks‘
rates.
14. 7.Repurchase Agreements
Repo or Reverse Repo are transactions or short
term loans in which two parties agree to sell and
repurchase the same security.
They are usually used for overnight borrowing
Repo/Reverse Repo transactions can be done only
between the parties approved by RBI and in RBI
approved securities