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Published in: Economy & Finance, Business

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  • 1. STUTI . KANIKA. PARAG. KUSH. ABHINAV.MAYANK ARORA.
  • 2.  The money market is a market for financial assets that are close substitute for money. It is a market of short term funds and instrument having maturity period less than 1 year or 1 year. MAIN PLAYERS OF MONEY MARKET ARE AS FOLLOWS…… Reserve bank of India ( RBI ). The Discount and Finance House of India ( DHFI ). Mutual Funds , Corporate Investors , Non Banking finance Companies ( NBFC ). The Securities Trading Corporation of India ( STCI ).
  • 3.  RBI COMMERCIAL BANKS CO-OPERATIVE BANKS NON BANKING FINANCIAL INSTITUTIONS INDEGENEOUS BANKS MONEY LENDERS
  • 4.  Treasury bills ( t- bills ) Call / Notice money Commercial Paper ( CPs ) Certificates of Deposits ( CDs ) Commercial Bills ( CBs ) Collateralized Borrowing and Lending Obligation ( CBLO )
  • 5.  T – bills are short term instrument used by the government to raise short term funds. Issue t discount and redeem at par. They are negotiable instrument. Bank, retail institution, organization institution , can purchase t- bills & individual can not purchase. It can be issue trough auction. It is available for a minimum amount of Rs 25000 and in multiples.
  • 6.  Unsecured short term promissory Note, Issued by Company having tangible net worth of Rs. 4 cr, Primary Dealers & FIs. Rating shall be taken b4 issuing. Minimum rating is P2 by CRISIL, A2 by ICRA & PR2 by CARE. Maturity-Minimum 7 days & Maximum 1 year. Investment in CP can be done by individuals, banks, corporates, NRIs, & FIIs. The RBI publishes the rates of interest on CP on monthly as well as weekly basis.
  • 7. EQUILIBRIUM IN FINANCIAL MARKETS(a) Supply and demand for loanable funds and determination of interest rate Interest rate Sf (lending) S’f ie i’e Df (borrowing) 0 A B Amount of loanable funds
  • 8. (b) Supply and demand for securities and determination of prices Price SS (borrowing) P’e Pe D’s Ds (lending) 0 A’ B’ Amount of securities
  • 9.  Repos (a.)Inter-bank repo.-% (b.) RBI’s repo ( i.) Repo Rate.—6.75% (ii.) Reverse Repo Rate.—5.75% Bank rate.--6% Interest rate.--%VVVVVVVVVVVVVVVVVV S.L.R.--24% C.R.R--6%
  • 10. MONEY MARKET RETURNS• Interest Rate Function of the unit of account, maturity, and default risk• Rate of Return on Risky Assets Cash dividend Ending price – Beginning price r= + Beginning price Beginning price Dividend yield Capital yield• Inflation and Real Interest Rate 1 + Nominal rate 1 + Real rate = 1 + Inflation rate
  • 11. DETERMINANTS OF RATES OF RETURN• Expected Productivity of Capital• Degree of Uncertainty about the Productivity ofCapital• Time Preferences of People.• Degree of Risk Aversion.
  • 12. The LAF is the tool of day to day liquidity management through sales and purchase of securities or resale / repurchase under the repo/reverse repo operationLAF is a tool for managing day to day liquidity mismatches in the system, restricting & steering short term money market rates in accordance to monetary policy objectives.