Transaction in which 2 parties agree to sell & repurchase the same security. Under such an agreement, the seller sells specified securities with an agreement to repurchase the same at a mutually decided future date and a price.
The Repo/Reverse repo transaction can only be done at Mumba i between parties approved by RBI & in securities as approved by RBI (Treasury Bills, Central/State Govt. Securities).
The term Government securities encompass all bonds & treasury bills issued by the Central and the State govt. These securities are normally referred to, as “gilt-edged” as repayments of principal as well as interest are totally secured by sovereign guarantee.
Short-term notes issued by municipalities in anticipation of tax receipts or other revenues.
Federal funds - (in the U.S.)
Interest-bearing deposits held by banks and other depository institutions at the Federal Reserve; these are immediately available funds that institutions borrow or lend, usually on an overnight basis. They are lent for the federal funds rate.
Banks (principal dealers) Swaps Dealers, banks (principal users) Futures Options Dealers, banks (principal users) Futures Contracts Money market funds, local government investment pools, short-term investment funds Shares in Money Market Instruments Farm Credit System, Federal Home Loan Bank System, Federal National Mortgage Association Government-Sponsored Enterprise Securities Nonfinancial and financial businesses Bankers Acceptances Non financial and financial businesses Commercial Paper State and local governments Municipal Notes government Treasury Bills Securities dealers, banks, non financial corporations, governments (principal participants) Repurchase Agreements Banks Eurodollar Time Deposits and CDs Banks Negotiable Certificates of Deposit (CDs) Banks Discount Window Banks Federal Funds Principal Borrowers Instrument
The money available to consumers, investors, etc. to spend or invest in products is known as the money supply of the market.
High money supply high -> increased demand for products in the products market -> inflation (rising prices).
To enable the monetary authorities to guard against this kind of inflation, a few options are available where use is made of the money market, two of which are ---- Selling money market instruments & Increasing interest rates by offering less money
1. Efficient financial markets are required to channel funds from surplus-spending units (savers) to deficit-spending units. Typically, such securities entitle the holder to a stream of periodic future cash payments.
2. Financial intermediaries allow economies of scale to be realized when matching surplus-spending units with deficit-spending units. Greater opportunities for portfolio diversification and money management can be gained.
The money market is a vibrant market, affecting our everyday lives. As the short-term market for money, money changes hands in a short time frame and the players in the market have to be alert to changes, up to date with news and innovative with strategies and products
In brief, various policy initiatives by the Reserve Bank have facilitated development of a wider range of instruments such as market repo, interest rate swaps, CDs and CPs. This approach has avoided market segmentation while meeting demand for various products. These developments in money markets have enabled better liquidity management by the Reserve Bank.