Money market instruments for degree classes

3.  Money market is a market for short-term loan
or financial assets
 These short term instruments can be
converted into cash readily without any loss
and at low transaction cost.


4. Some of the money market instruments are:-
 Call/Notice Money
 Commercial Paper
 Treasury Bills
 Commercial Bills
 Certificate of Deposit
 Repurchase Agreements
 Collateralized Borrowing and Lending
Obligation (CBLO)

5.  money is borrowed or lent on demand and has a
maturity ranging between one day and two
weeks.
 also known as Inter-bank call money market.
 The main purpose of Call/Notice market is to
facilitate the commercial banks to bridge the
gaps of shortfall of funds, to meet the sudden
requirement of funds out of large outflows, and
to fulfill the stipulated requirements of RBI such
as the Cash Reserve Ratio (CRR) and the Statutory
Liquidity Requirements (SLR).

6.  Call money is defined as the money borrowed
or lent for a single day and repaid on the next
working day.
 Notice money is defined as the money
borrowed or lent for a period ranging
between two to fourteen days.
 There is no collateral security required in
these types of requirements as they are of
short term nature.

7.  a short-term unsecured promissory note
issued by well-established corporates with
the requisite credit rating.
 It is issued by well-established joint stock
companies to raise working capital.
 In India, CP made its appearance from January
1990, when the RBI issued detailed guidelines
for the issue of CPs
 CP is sold at a discount to its face value and
is redeemed at face value.

9.  a money market instrument issued by the
central bank on behalf of the government to
borrow for the government’s short-term
financial needs.
 It is issued at a discount to its face value.
 the face value represents its maturity value
and it is sold at the point of issue at a lesser
price.

10.  Borrower:
The borrower is the Central Government. RBI
issues the TBs on behalf of the government and
honors them on the date of maturity.
 Investors:
banks, insurance companies like LIC, GIC etc.,
NABARD and UTI, corporates and Foreign
Institutional Investors (FII).
 Tenure:
14 days, 91 days, 182 days or 364 days.
 Mode of Sale:
The RBI sells the TBs by auction to banks and
others. It invites bids for the purchase of TBs.
The banks which quote the lowest discount to
the face value are sold the TBs.

12.  A Commercial Bill is one which arises out of a
genuine trade transaction, i.e. credit transaction.
 As soon as goods are sold on credit, the seller
draws a bill on the buyer for the amount due
 The buyer accepts it immediately agreeing to pay
the amount mentioned therein after a certain
specified date.
 Thus, a bill of exchange contains a written order
from the creditor to the debtor, to pay a certain
sum, to a certain person, after a creation period

13.  CD is a negotiable certificate issued by a bank
on the receipt of a large deposit.
 It is like a fixed deposit receipt issued by the
bank on the receipt of a deposit.
 The ordinary FD receipt is neither negotiable
nor transferable. FD is not subject to
restrictions like minimum amount, tenure etc.
 CD is a negotiable certificate payable to
bearer.
 In India, the RBI permitted banks to issue CDs
from June, 1989

14.  Borrower:
any scheduled bank other than RRBs for raising
large funds.
 Investors:
joint stock companies, institutions, high net-
worth individuals or any other funds
 Tenure:
usually between three months to one year. The
common tenure is three months.
 Denomination of CD:
Originally, the minimum denomination was Rs.1
crore and in multiples of Rs.5 lakh thereafter.
Later on, it was modified as a minimum
denomination of Rs.10 lakh and multiples of Rs.5
lakh thereafter.

16.  Repurchase agreements are also called repos.
 Repos are short- term loans that buyers and sellers
agree upon for selling and repurchasing.
 Repo transactions are allowed only among RBI-
approved securities like state and central government
securities, T-bills, PSU bonds, corporate bonds etc.
 Repurchase agreements, on the other hand, are sold
off by sellers, held back with a promise to purchase
them back at a certain price and that too would
happen on a specific date. The same is the procedure
with that of the buyer, who purchases the securities
and other instruments and promises to sell them
back to the seller at the same time.

17.  A CBLO is one of the money market instruments
available in electronic book entry form.
 It represents an obligation between borrower and
lenders as per the terms of the loans.
 The maturity period ranges from one day to
ninety days. As per RBI guidelines this can also
be extended up to one year.
 They are approved and developed by RBI and
Clearing Corporation of India (CCIL) in 2003.
 It is an online trading system where major
participants in the lender side are mutual funds
and insurance companies.

18.  In case of borrowers the major participants
are nationalized banks, primary dealers and
non-financial companies.
 In CBLO, the borrower has the obligation to
repay the money borrowed at a
predetermined future date.