Money Mkt

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Money Mkt

  1. 1. MONEY MARKET
  2. 2. <ul><li>It is a market for dealing in monetary assets of short-term nature. </li></ul><ul><li>It is a wholesale market. </li></ul><ul><li>The volumes are very high. </li></ul><ul><li>Transactions are settled on daily basis. </li></ul><ul><li>Short term constitute : 1 day to 1 year </li></ul><ul><li>MM centres in India are : Mumbai , Delhi , Kolkata </li></ul>
  3. 3. <ul><li>Major Players </li></ul><ul><li>RBI </li></ul><ul><li>Commercial Banks </li></ul><ul><li>Mutual Funds </li></ul><ul><li>Financial Institutions </li></ul><ul><li>Primary Dealers </li></ul>
  4. 4. <ul><li>MM instruments have following characteristics: </li></ul><ul><li>Liquidity </li></ul><ul><li>Minimum transaction cost </li></ul><ul><li>No loss in value </li></ul>
  5. 5. <ul><li>Utility </li></ul><ul><li>Helps in meeting temporary shortages of cash. </li></ul><ul><li>Facilitates the conduct of monetary policy </li></ul><ul><li>Short term surpluses and deficits are evened out </li></ul><ul><li>Helps RBI to influence liquidity and level of </li></ul><ul><li>interest rates </li></ul><ul><li>Facilitates government market borrowing </li></ul>
  6. 6. <ul><li>CALL / NOTICE Money Market </li></ul><ul><li>Predominantly an inter-bank market </li></ul><ul><li>Minimum size of transaction Rs 10 cr </li></ul><ul><li>Call- overnight & Short Notice -1 day - 14 days </li></ul><ul><li>TERM Money Market </li></ul><ul><li>Maturity ranges between 3 months -1 year </li></ul>
  7. 7. <ul><li>INSTRUMENTS </li></ul><ul><li>Treasury Bills [T-bills] </li></ul><ul><li>Issued by RBI on behalf of Central Government to raise short-term funds </li></ul><ul><li>Issued for 91 days,182-days ,364 days </li></ul><ul><li>Issued at discount and repaid at par on maturity </li></ul><ul><li>Negotiable security </li></ul><ul><li>Can be rediscounted with banks , thus highly liquid </li></ul>
  8. 8. <ul><li>No default risk </li></ul><ul><li>Easy availability </li></ul><ul><li>Assured yield </li></ul><ul><li>Minimum amount Rs 25,000 or in multiples thereof </li></ul><ul><li>Participants are banks , mutual funds , FIs , PFs , corporates ,foreign banks , FIIs. </li></ul>
  9. 9. <ul><li>Certificate of Deposit [CD] </li></ul><ul><li>They are short term time-deposits issued by commercial banks and financial institutions. </li></ul><ul><li>They are interest bearing ,maturity dated obligations of banks . </li></ul><ul><li>They are unsecured in nature. </li></ul><ul><li>Minimum issue of Rs 1 lac and additional amount in multiples thereof </li></ul><ul><li>They are in bearer form and can be traded in secondary market </li></ul>
  10. 10. <ul><li>Issued for varying period between 2 weeks - 5 years. </li></ul><ul><li>Can be issued on a discount to face value basis as well as on floating rate method. </li></ul><ul><li>Banks and FIs cannot issue loan against CDs </li></ul><ul><li>They cannot buy back their own CDs before maturity </li></ul><ul><li>Usually purchased by individuals, corporates , trusts , funds and NRIs . </li></ul>
  11. 11. <ul><li>Commercial Paper [CP] </li></ul><ul><li>Is an unsecured short-term promissory note issued at a discount by creditworthy corporates , primary dealers and all Indian financial institutions </li></ul><ul><li>Issued for minimum period of 7 days and maximum of 1 year from the date of issue </li></ul><ul><li>Issued in denominations of Rs 5 lac and multiples thereof </li></ul>
  12. 12. <ul><li>Can be issued at a discount as decided by the company </li></ul><ul><li>It is negotiable and transferable </li></ul><ul><li>Usually purchased by individuals , banks , corporates , unincorporated bodies , NRIs and FIIs. </li></ul>
  13. 13. <ul><li>Commercial Bills </li></ul><ul><li>Are negotiable instruments drawn by the seller on the buyer which are , in turn , accepted and discounted by commercial banks. </li></ul><ul><li>Important tool to finance credit sales </li></ul>
  14. 14. <ul><li>Demand bill : payable on demand </li></ul><ul><li>Usance bill : payable after a specified time </li></ul><ul><li>Documentary bill : documents are held by bank till bill is paid </li></ul><ul><li>Clean bill </li></ul>
  15. 15. <ul><li>Tools for Managing Liquidity in the Money Market </li></ul><ul><li>Direct Instruments </li></ul><ul><li>Reserve Requirement :CRR [8.75%] - cash that banks need to keep with RBI ; SLR[25%] – mandatory investment in government security </li></ul><ul><li>Limits on Refinance </li></ul><ul><li>Administered Interest Rates : bank rate – 6% </li></ul><ul><li>Qualitative and Quantitative Restrictions on Credit </li></ul>
  16. 16. <ul><li>Indirect Instruments </li></ul><ul><li>Open Market </li></ul><ul><li>Repos / Reverse Repos </li></ul>
  17. 17. Thank you

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