1. Anjali V.S. Sharma 673
Sushreet Pattanayak 692

2.  Money market means market where money or its equivalent can
be traded. Money is synonym of liquidity.
 Money market consists of financial institutions and dealers in
money or credit who wish to generate liquidity. It is better known
as a place where large institutions and government manage their
short term cash needs. For generation of liquidity, short term
borrowing and lending is done by these financial institutions and
dealers.
 Money Market is part of financial market where instruments with
high liquidity and very short term maturities are traded. Due to
highly liquid nature of securities and their short term maturities,
money market is treated as a safe place.
 Hence, money market is a market where short term obligations such
as treasury bills, commercial papers and banker’s acceptances are
bought and sold.

3.  Treasury bills
Treasury bills are short-term securities. It helps to finance current federal deficits. Sold on an
irregular basis to smooth out the uneven flow of revenues from corporate and individual tax
receipts.
 Certificates of deposit(COD)
A certificate of deposit is a document evidencing a time deposit placed with a depository
institution. The following information appears on the certificate:
- the amount of the deposit;
- the date on which it matures;
- the interest rate; and
- the method under which the interest is calculated.
Large negotiable CDs are generally issued in denominations of $1 million or more.
 Commercial Paper
Commercial paper is a short-term unsecured promissory note issued by corporations and foreign
governments. It is a low-cost alternative to bank loans, for many large, credit worthy
issuers. Issuers are able to efficiently raise large amounts of funds quickly.
 Bankers' Acceptance
Bankers' acceptances are generally used to finance foreign trade. A buyer's promise to pay a
specific amount of money at a fixed or determinable future time (usually less than 180 days) is
issued to a seller. A bank then guarantees or "accepts" this promise in exchange for a claim on the
goods as collateral. The seller may obtain immediate cash in lieu of future payment by selling the
acceptance at a discount.

4.  The official money market in Australia is
basically analogous to the U.S. federal
funds market.
 It allocates funds that receive same day credit
in accounts held by trading banks and dealers
at the Reserve Bank of Australia.
 These accounts, which are used for clearing
funds, are called exchange settlement
accounts.

5.  Australia also has an unofficial money market that handles
all money market transactions in which banks do not
receive same-day credit in their exchange settlement
accounts.
 In short, Australia has two types of funds. The first consists
of same-day funds or exchange settlement funds that
accrue to exchange settlement accounts at the Reserve
Bank.
 Funds of the second type are those transferred by bank
checks. These are next-day funds because checks
presented against banks in Australia are cleared through
the Australian Clearing House and do not affect the
exchange settlement accounts of banks until the following
morning.

6.  Dealers
Dealers play a pivotal role in the daily functioning of
the official money market. For one thing, the Reserve
Bank deals almost exclusively with authorized dealers
so that, with the exception of rediscounting, all
movements in same-day funds are initiated through
the accounts of dealers at the Reserve Bank of
Australia. Another reason relates to the timing
convention for debiting and crediting the exchange
settlement accounts of dealers. These accounts are
credited and debited on a same-day basis which gives
dealers the central role in distributing exchange
settlement funds throughout the banking system.

7.  Trading banks
Trading banks in Australia are banks that are authorized to
clear checks. Nonbanks are allowed only indirect access to
the check clearing system either by holding accounts with
trading banks or by having an agency arrangement with a
trading bank.
 Reserve Bank of Australia
The monetary policy of the Reserve Bank of Australia is
conducted through its exchange settlement position with
the banking system. To influence the cash position of the
banking system the Reserve Bank actively uses open
market operations consisting of outright purchases and
sales of government securities and repurchase and reverse
repurchase agreements.

8.  With respect to the rediscounting of
government securities, the Reserve Bank
stands ready to purchase securities at a price
P, determined by
P = 100 (1 -nr/365)
where r is the rediscount rate and n is the
number of days to maturity on the note.

9.  ASIC is Australia’s corporate, markets and financial
services regulator.
 They are required to:
 maintain, facilitate and improve the performance of the
financial system and entities in it
 promote confident and informed participation by investors and
consumers in the financial system
 administer the law effectively and with minimal procedural
requirements
 enforce and give effect to the law
 receive, process and store, efficiently and quickly, information
that is given to us
 make information about companies and other bodies available
to the public as soon as practicable.

11.  Subject to availability, the Bank will sell selected
series of Treasury Fixed Coupon Bonds and Treasury
Capital Indexed Bonds. Treasury Fixed Coupon Bonds
pay interest on a semi-annual basis at the prescribed
coupon rate, applied to the face value. At maturity,
the face value amount is repaid.
 Treasury Capital Indexed Bonds pay interest on a
quarterly basis at the prescribed coupon rate, applied
to the face value. However, the face value is adjusted
by indexing the principal to inflation. At maturity,
investors receive the adjusted capital value of the
security (i.e. the face value as adjusted for inflation
over the life of the bond).

12.  Repos-The Repo or the repurchase agreement is
used by the government security holder when he
sells the security to a lender and promises to
repurchase from him overnight. Hence the
Repos have terms raging from 1 night to 30 days.
They are very safe due to government backing.
 Floating Rate Notes (FRNs)-Debt instrument
with an initial maturity longer than one year and
shorter than 10 years the payment of which
depends on a FRN depending on short-term
interest rates.