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MONEY MARKET
    1) Meaning of Money Market:
    Money market refers to the market where money and highly
liquid marketable securities are bought and sold having a maturity
period of one or less than one year. It is not a place like the stock
market but an activity conducted by telephone. The money market
constitutes a very important segment of the Indian financial
system.
    The highly liquid marketable securities are also called as ‘
money market instruments’ like treasury bills, government
securities, commercial paper, certificates of deposit, call money,
repurchase agreements etc.
   According to the Geoffrey, “money market is the
collective name given to the various firms and institutions
that deal in the various grades of the near money.”
CONTENTS

   What is Money Market?
   Features of Money Market?
   Objective of Money Market?
   Importance of Money Market?
   Composition of Money Market?
   Instrument of Money Market?
   Structure of Indian Money Market?
   Disadvantage of Money Market?
Continued…….
   Characteristic features of a developed
    money Market?
   Recent development in Money Market?
   Summary
1! What is Money Market?
As per RBI definitions “ A market for short terms
  financial assets that are close substitute for
  money, facilitates the exchange of money in
  primary and secondary market”.

   The money market is a mechanism that deals with
    the lending and borrowing of short term funds
    (less than one year).

   A segment of the financial market in which
    financial instruments with high liquidity and very
    short maturities are traded.
Continued…….
   It doesn’t actually deal in cash or money
    but deals with substitute of cash like trade
    bills, promissory notes & govt papers
    which can converted into cash without any
    loss at low transaction cost.

   It includes all individual, institution and
    intermediaries.
2 ! Features of Money Market?

   It is a market purely for short-terms funds or
    financial assets called near money.

   It deals with financial assets having a maturity
    period less than one year only.

   In Money Market transaction can not take place
    formal like stock exchange, only through oral
    communication, relevant document and written
    communication transaction can be done.
Continued……..
   Transaction have to be conducted without the
    help of brokers.

   It is not a single homogeneous market, it
    comprises of several submarket like call money
    market, acceptance & bill market.

   The component of Money Market are the
    commercial banks, acceptance houses & NBFC
    (Non-banking financial companies).
3 ! Objective of Money Market?
   To provide a parking place to employ short term
    surplus funds.

   To provide room for overcoming short term
    deficits.

   To enable the central bank to influence and
    regulate liquidity in the economy through its
    intervention in this market.

   To provide a reasonable access to users of short-
    term funds to meet their requirement quickly,
    adequately at reasonable cost.
4 ! Importance of Money Market?

o   Development of trade & industry.
o   Development of capital market.
o   Smooth functioning of commercial banks.
o   Effective central bank control.
o   Formulation of suitable monetary policy.
o   source of finance to government.
5 ! Composition of Money Market?

Money Market consists of a number of sub-
  markets which collectively constitute the
  money market. They are,
 Call Money Market

 Commercial bills market or discount

  market
 Acceptance market

 Treasury bill market
6 ! Instrument of Money Market?
A variety of instrument are available in a developed
  money market. In India till 1986, only a few
  instrument were available.

They were
• Treasury bills

• Money at call and short notice in the call loan

  market.
• Commercial bills, promissory notes in the bill

  market.
New instrument

    Now, in addition to the above the following new
    instrument are available:

   Commercial papers.
   Certificate of deposit.
   Inter-bank participation certificates.
   Repo instrument
   Banker's Acceptance
   Repurchase agreement
   Money Market mutual fund
Treasury Bills (T-Bills)

   (T-bills) are the most marketable money market
    security.
   They are issued with three-month, six-month
    and one-year maturities.
   T-bills are purchased for a price that is less than
    their par (face) value; when they mature, the
    government pays the holder the full par value.
   T-Bills are so popular among money market
    instruments because of affordability to the
    individual investors.
Certificate of deposit (CD)

   A CD is a time deposit with a bank.
   Like most time deposit, funds can not
    withdrawn before maturity without paying
    a penalty.
   CD’s have specific maturity date, interest
    rate and it can be issued in any
    denomination.
   The main advantage of CD is their safety.
   Anyone can earn more than a saving
    account interest.
Commercial paper (CP)

   CP is a short term unsecured loan issued by a
    corporation typically financing day to day
    operation.

   CP is very safe investment because the financial
    situation of a company can easily be predicted
    over a few months.

   Only company with high credit rating issues
    CP’s.
Repurchase agreement (Repos)

   Repo is a form of overnight borrowing and is
    used by those who deal in government
    securities.
   They are usually very short term repurchases
    agreement, from overnight to 30 days of more.
   The short term maturity and government backing
    usually mean that Repos provide lenders with
    extreamly low risk.
   Repos are safe collateral for loans.
Banker's Acceptance
   A banker’s acceptance (BA) is a short-term
    credit investment created by a non-financial firm.
   BA’s are guaranteed by a bank to make
    payment.
   Acceptances are traded at discounts from face
    value in the secondary market.
   BA acts as a negotiable time draft for financing
    imports, exports or other transactions in goods.
   This is especially useful when the credit
    worthiness of a foreign trade partner is unknown.
7 ! Structure of Indian Money
                Market?
I :- ORGANISED STRUCTURE
    1. Reserve bank of India.
    2. DFHI (discount and finance house of India).
     3. Commercial banks
          i. Public sector banks
                    SBI with 7 subsidiaries
                    Cooperative banks
                    20 nationalised banks
          ii. Private banks
                    Indian Banks
                    Foreign banks
     4. Development bank
          IDBI, IFCI, ICICI, NABARD, LIC, GIC, UTI etc.
Continued…..
II.   UNORGANISED SECTOR
       1. Indigenous banks
       2 Money lenders
       3. Chits
       4. Nidhis

III. CO-OPERATIVE SECTOR
      1. State cooperative
          i. central cooperative banks
                 Primary Agri credit societies
                 Primary urban banks
      2. State Land development banks
             central land development banks
             Primary land development banks
8 ! Disadvantage of Money Market

   Purchasing power of your money goes
    down, in case of up in inflation.
   Absence of integration.
   Absence of Bill market.
   No contact with foreign Money markets.
   Limited instruments.
   Limited secondary market.
   Limited participants.
9 ! Characteristic features of a
      developed money Market?
 Highly organaised banking system
 Presence of central bank

 Availability of proper credit instrument

 Existence of sub-market

 Ample resources

 Existence of secondary market

 Demand and supply of fund
10 ! Recent development in
         Money Market
   Integration of unorganised sector with the
    organised sector
   Widening of call Money market
   Introduction of innovative instrument
   Offering of Market rates of interest
   Promotion of bill culture
   Entry of Money market mutual funds
   Setting up of credit rating agencies
   Adoption of suitable monetary policy
   Establishment of DFHI
   Setting up of security trading corporation of India
    ltd. (STCI)
11 !     Summary
   The money market specializes in debt
    securities that mature in less than one year.
   Money market securities are very liquid, and
    are considered very safe. As a result, they offer
    a lower return than other securities.
   The easiest way for individuals to gain access
    to the money market is through a money market
    mutual fund.
   T-bills are short-term government securities that
    mature in one year or less from their issue date.
   T-bills are considered to be one of the safest
    investments.
Continued…….
   A certificate of deposit (CD) is a time deposit with a
    bank.
   Annual percentage yield (APY) takes into account
    compound interest, annual percentage rate (APR)
    does not.
   CDs are safe, but the returns aren't great, and your
    money is tied up for the length of the CD.
   Commercial paper is an unsecured, short-term loan
    issued by a corporation. Returns are higher than T-
    bills because of the higher default risk.
   Banker’s acceptance (BA) are negotiable time draft
    for financing transactions in goods.
   Repurchase agreement (repos) are a form of
    overnight borrowing backed by government
    securities.
Thank you

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Ppt on-money-market-1

  • 1. MONEY MARKET 1) Meaning of Money Market: Money market refers to the market where money and highly liquid marketable securities are bought and sold having a maturity period of one or less than one year. It is not a place like the stock market but an activity conducted by telephone. The money market constitutes a very important segment of the Indian financial system. The highly liquid marketable securities are also called as ‘ money market instruments’ like treasury bills, government securities, commercial paper, certificates of deposit, call money, repurchase agreements etc. According to the Geoffrey, “money market is the collective name given to the various firms and institutions that deal in the various grades of the near money.”
  • 2. CONTENTS  What is Money Market?  Features of Money Market?  Objective of Money Market?  Importance of Money Market?  Composition of Money Market?  Instrument of Money Market?  Structure of Indian Money Market?  Disadvantage of Money Market?
  • 3. Continued…….  Characteristic features of a developed money Market?  Recent development in Money Market?  Summary
  • 4. 1! What is Money Market? As per RBI definitions “ A market for short terms financial assets that are close substitute for money, facilitates the exchange of money in primary and secondary market”.  The money market is a mechanism that deals with the lending and borrowing of short term funds (less than one year).  A segment of the financial market in which financial instruments with high liquidity and very short maturities are traded.
  • 5. Continued…….  It doesn’t actually deal in cash or money but deals with substitute of cash like trade bills, promissory notes & govt papers which can converted into cash without any loss at low transaction cost.  It includes all individual, institution and intermediaries.
  • 6. 2 ! Features of Money Market?  It is a market purely for short-terms funds or financial assets called near money.  It deals with financial assets having a maturity period less than one year only.  In Money Market transaction can not take place formal like stock exchange, only through oral communication, relevant document and written communication transaction can be done.
  • 7. Continued……..  Transaction have to be conducted without the help of brokers.  It is not a single homogeneous market, it comprises of several submarket like call money market, acceptance & bill market.  The component of Money Market are the commercial banks, acceptance houses & NBFC (Non-banking financial companies).
  • 8. 3 ! Objective of Money Market?  To provide a parking place to employ short term surplus funds.  To provide room for overcoming short term deficits.  To enable the central bank to influence and regulate liquidity in the economy through its intervention in this market.  To provide a reasonable access to users of short- term funds to meet their requirement quickly, adequately at reasonable cost.
  • 9. 4 ! Importance of Money Market? o Development of trade & industry. o Development of capital market. o Smooth functioning of commercial banks. o Effective central bank control. o Formulation of suitable monetary policy. o source of finance to government.
  • 10. 5 ! Composition of Money Market? Money Market consists of a number of sub- markets which collectively constitute the money market. They are,  Call Money Market  Commercial bills market or discount market  Acceptance market  Treasury bill market
  • 11. 6 ! Instrument of Money Market? A variety of instrument are available in a developed money market. In India till 1986, only a few instrument were available. They were • Treasury bills • Money at call and short notice in the call loan market. • Commercial bills, promissory notes in the bill market.
  • 12. New instrument Now, in addition to the above the following new instrument are available:  Commercial papers.  Certificate of deposit.  Inter-bank participation certificates.  Repo instrument  Banker's Acceptance  Repurchase agreement  Money Market mutual fund
  • 13. Treasury Bills (T-Bills)  (T-bills) are the most marketable money market security.  They are issued with three-month, six-month and one-year maturities.  T-bills are purchased for a price that is less than their par (face) value; when they mature, the government pays the holder the full par value.  T-Bills are so popular among money market instruments because of affordability to the individual investors.
  • 14. Certificate of deposit (CD)  A CD is a time deposit with a bank.  Like most time deposit, funds can not withdrawn before maturity without paying a penalty.  CD’s have specific maturity date, interest rate and it can be issued in any denomination.  The main advantage of CD is their safety.  Anyone can earn more than a saving account interest.
  • 15. Commercial paper (CP)  CP is a short term unsecured loan issued by a corporation typically financing day to day operation.  CP is very safe investment because the financial situation of a company can easily be predicted over a few months.  Only company with high credit rating issues CP’s.
  • 16. Repurchase agreement (Repos)  Repo is a form of overnight borrowing and is used by those who deal in government securities.  They are usually very short term repurchases agreement, from overnight to 30 days of more.  The short term maturity and government backing usually mean that Repos provide lenders with extreamly low risk.  Repos are safe collateral for loans.
  • 17. Banker's Acceptance  A banker’s acceptance (BA) is a short-term credit investment created by a non-financial firm.  BA’s are guaranteed by a bank to make payment.  Acceptances are traded at discounts from face value in the secondary market.  BA acts as a negotiable time draft for financing imports, exports or other transactions in goods.  This is especially useful when the credit worthiness of a foreign trade partner is unknown.
  • 18. 7 ! Structure of Indian Money Market? I :- ORGANISED STRUCTURE 1. Reserve bank of India. 2. DFHI (discount and finance house of India). 3. Commercial banks i. Public sector banks SBI with 7 subsidiaries Cooperative banks 20 nationalised banks ii. Private banks Indian Banks Foreign banks 4. Development bank IDBI, IFCI, ICICI, NABARD, LIC, GIC, UTI etc.
  • 19. Continued….. II. UNORGANISED SECTOR 1. Indigenous banks 2 Money lenders 3. Chits 4. Nidhis III. CO-OPERATIVE SECTOR 1. State cooperative i. central cooperative banks Primary Agri credit societies Primary urban banks 2. State Land development banks central land development banks Primary land development banks
  • 20. 8 ! Disadvantage of Money Market  Purchasing power of your money goes down, in case of up in inflation.  Absence of integration.  Absence of Bill market.  No contact with foreign Money markets.  Limited instruments.  Limited secondary market.  Limited participants.
  • 21. 9 ! Characteristic features of a developed money Market?  Highly organaised banking system  Presence of central bank  Availability of proper credit instrument  Existence of sub-market  Ample resources  Existence of secondary market  Demand and supply of fund
  • 22. 10 ! Recent development in Money Market  Integration of unorganised sector with the organised sector  Widening of call Money market  Introduction of innovative instrument  Offering of Market rates of interest  Promotion of bill culture  Entry of Money market mutual funds  Setting up of credit rating agencies  Adoption of suitable monetary policy  Establishment of DFHI  Setting up of security trading corporation of India ltd. (STCI)
  • 23. 11 ! Summary  The money market specializes in debt securities that mature in less than one year.  Money market securities are very liquid, and are considered very safe. As a result, they offer a lower return than other securities.  The easiest way for individuals to gain access to the money market is through a money market mutual fund.  T-bills are short-term government securities that mature in one year or less from their issue date.  T-bills are considered to be one of the safest investments.
  • 24. Continued…….  A certificate of deposit (CD) is a time deposit with a bank.  Annual percentage yield (APY) takes into account compound interest, annual percentage rate (APR) does not.  CDs are safe, but the returns aren't great, and your money is tied up for the length of the CD.  Commercial paper is an unsecured, short-term loan issued by a corporation. Returns are higher than T- bills because of the higher default risk.  Banker’s acceptance (BA) are negotiable time draft for financing transactions in goods.  Repurchase agreement (repos) are a form of overnight borrowing backed by government securities.