To know the meaning and importance of money market i have prepared to educate the people for better understanding of their business, career and profession. Thanks CA Rukmani

1. CASE STUDY ON MONEY
MARKET
CA RUKMANI

2. INDEX
• Introduction of Money Market
• Objective of Money Market
• Money Market Instruments
• Case study on Inter Banking Deposits
• Challenges Faced by the Bank
• Relevancy of Repo
• Relation between Repo Rate and inter
banking Rate
• Exception of this Relationship
• Effect of Repo on Inflation
• Conclusion

3. Introduction of Money market
• Money market transactions are generally used for
funding the transactions in other markets including
government securities market and meeting short term
liquidity mismatches. Within one year depending upon
the tenors, money market is classified into:
• a) Overnight Market : The tenure of transactions is
one working day.
• b) Notice Money Market: The tenure of the
transaction is from 2 days to 14 working Days.
• c) Term Money Market: The tenure of the
transaction is from 15 working days to one year

4. Objectives of Money Market
Equilibrium Mechanism for
Evening Out
Focal point for Central Bank
intervention
Reasonable access to short
term money requirenment

5. Money Market Instruments

6. • Call Money: Are those moneys which are lent
where the borrower has to repay the funds when
called on to so by the lender
• Notice Money : Are those moneys where the
lender has to give a certain number of days’ Notice,
which has been agreed on at the time of contract, to
the borrower to repay the funds.
• Term Money : It refers to those borrowing/ lending
transactions between the inter-bank participants
which have tenors greater than 14 days.
• Bank Fixed Deposits: Scheduled commercial Banks and
Co-operative Banks accept term deposits for a period of 7
days and above.
» Contd…….

7. • Certificates of Deposits: It is negotiable money
market instruments and issued in dematerialized form
or as a usance Promissory note, for funds deposited
at a bank or other eligible financial institution for a
specified time period.
• Commercial Papers: It is an unsecured money
market instruments issued in the form of Promissory
Notes.
• Bill Rediscounting Scheme: Bank in their normal
course of business discount bills of exchange. To provide
liquidity and to promote the bill culture in the economy, the RBI
formulated a scheme whereby a bank may raise funds by
issue of Usance Promissory Notes in Convenient lots and
maturities on the strength of genuine trade bills discounted by
it. Contd…

8. • Inter – Bank Participants Certificates (IBPCs): the
Banks can raise money/ deploy short-term surplus. In
the case of IBPCs the borrowing bank passes/ sell
Loans and credit that is has been in its books, for a
temporary periods.
• Collateralized Borrowing and lending Obligations (
CBLO): it is a discounted instruments available in the
electronic book entry form for the maturity period
ranging from one day to 9 days
• Treasury Bills: Treasury Bills is a short term
money market instrument issued by the Government
of India (GOI) through the RBI.
• Contd…

9. • Repurchase Agreements (Repos): Repo is a
Money market mechanism, which enables
collateralized short term borrowing and lending
through sale/purchase operations in debt instruments.

10. Case Study
• Between Canara Bank and Syndicate Bank,
there is a movement of deposits to the extent of
Rs 10,000 crores on a day but the customer has
assured that he will reverse move it on eighth
day. Explain what are the challenges faced by
the banks and how repo will be relevant
between them. Assuming your own interest
rates, illustrate the relation between repo rate
and the interest rate that will be offered by the
receiving bank on this short term deposit.

11. Challenges faced by Bank
FUNDING LIQUIDITY RISK
Capture the inability to serve its liability as they fall due
When market dysfunctional or strained, bank faces a
greater risk which in extreme cases result in
insolvency

12. Funding Liquidity Risk

13. Relevancy of Repo
• Providing an efficient source of money
market funding
• Providing a secure home for liquid
• Broadening and stabilizing the money
market
• Facilitating central bank operations
• Hedging primary debt issuance
» Contd…

14. • Hedging and pricing derivatives
• Fostering price discovery
• Preventing settlement failures
• Preventing market ‘squeezes’
• Permitting faster settlement times
•
contd…..

16. Relation Between Repo Rate
and Inter Banking Deposit Rate
• If RBI increase the repo rate then the inter
banking deposit rates will increased.
• And if RBI decrease the repo rate then the
Bank rates will also be decreased.
• Repo rate and inter banking rate are
complementary to each other.

18. Effect of Repo on Inflation

19. Exception of this Relationship
• These relationship does not exist in the
following cases:
– Non-Banking Financial Institution
– Banks do not approach RBI for Credit
– Profit margins in speculative dealings are so
high.

20. Conclusion
• Money market is the lending market whose tenure is
upto one year.
• There are many instruments through which money are
flowing in the economy.
• Repo are transaction which occur between central bank
of the country and other banks.
• When repo rate of the country are increased then other
lending rate will also move and vice versa.
• Repo regulate the liquidity of the market and also helpful
to control the inflation of the economy.