MEANING AND INSTRUMENTS OF MONEY MARKET

1. BY:- AMANPREET KAUR
M.B.A – 1
ROLL-NO= 34
By PresenterwMedia.com

2. What is Financial market?
It is a mechanism which makes it possible for
borrowers to obtain funds and for lenders to
find suitable outlets for their finance.

3. Financial
market
Money Capital
market market

4. What is Money market?
It means market where money or its equivalent
can be traded.
It includes short-term borrowing and lending with
original maturities of one year or shorter time
frames.
Instruments with high liquidity are traded.

5. What are financial instruments?
A financial instrument is a tradable asset of any
kind, either cash; evidence of an ownership
interest in an entity; or a contractual right to
receive, or deliver, cash or another financial
instrument.
Enable channelizing funds from surplus to
deficit units.

6. Money
Market
Organized Unorganized
sector sector

7. Organized sector
Commercial paper
Treasury bill
Repo
Call money
Certificate of deposits
Commercial bill

8. Commercial paper
Commercial Paper (CP) is an unsecured money market
instrument issued in the form of a promissory note.
Introduced in January 1990 by the R.B.I.
It is issued by large banks and corporations to get
money to meet short term obligations.
It has fixed maturity of 1 to 270 days.

9. Treasury bill market
The R.B.I. issues the treasury bills on behalf of the
government to meet its deficits etc.
The commercial banks can invest there SLR’s with the
government in the form of these treasury bills.
Treasury bills, commonly referred to as T-Bills are
issued by Government of India against their short term
borrowing requirements with maturities ranging
between 14 to 364 days.

10. Market Repo
A security is sold with an agreement to
repurchase it at a pre-determined date and
rate.
It was introduced in December 1992.
The difference between the original sale price
of the security and repurchase sale price
represents interest, which is known as repo rate.

11. CALL MONEY MARKET
Money lent for one day is called ‘call money’; if it exceeds 1
day but is less than 15 days it is called ‘notice money’.
Money lent for more than 15 days is ‘term money’
The borrowing is exclusively limited to banks, who are
temporarily short of funds.
The main function of the call money market is to
redistribute the pool of day-to-day surplus funds of banks
among other banks in temporary deficit of funds.

12. Certificate of deposits
Introduced in 1989 by R.B.I
The commercial bank issued CD’s to the depositor.
They are issued at a discount rate freely determined by
the market/investors.
CD’s are transferable freely after 15days from the date
of issue.

13. Commercial bill
The commercial bill is also known as bill of exchange or
trade bill it is bill drawn by the seller to the buyer.
The bill period is 90 days, and interest charged is the rate
of discount which is based on market demand and supply.
During the fixed period bill can be discounted and
rediscounted by the commercial bank , this makes the bill
as self liquidating short term fund.

14. Unorganized sector
Indigenous bankers
Chit funds, Nidhis
Money lenders

15. Indigenous bankers
Vary in size from petty lenders to substantial
shroffs.
Act as money changers and finance internal trade
through internal bills of exchange.
Indigenous banking is usually family owned
business employing own working capital.

16. Chit funds & Nidhis
Chit funds are very common means of group
activities, where members contribute a fixed
amount of money and the beneficiary will be on the
basis of previously criteria or bids etc.
Nidhi are mutual benefit funds, member collect
huge amount of money and the same money is
advanced as loans to members and non members.

17. Money lenders
They give loan against crops, gold & other securities
etc.
They charge high rate of interest.
They use any means to recover their loans.
They give immediate loans and loans for any purpose.
• Keep close social relations with their clients.