ASMs Institute Of Management  And Computer Studies Thane Project  Guided By :  PROF. Sheetal Madam MONEY MARKET AND ROLE O...
Group Members Sr No. Roll No. Name 01 62 Amit Ahire 02 94 Mithilesh Kurmi 03 98 Mangesh Maid 04 104 Vaibhav Mujumdar 05 10...
INTRODUCTION <ul><li>Money market is as a place for bigger organizations and government to handle their short term money r...
DEFINITION <ul><li>A segment of the financial market in which financial instruments with high liquidity and very short mat...
The major players and their main role in the money market is listed below : Player Role Central Bank Intermediary Governme...
Characteristics of Money Market <ul><li>Dichotomic Structure  </li></ul><ul><li>Seasonality </li></ul><ul><li>Multiplicity...
Drawbacks of Indian Money Market <ul><li>Absence of Integration </li></ul><ul><li>Multiple rate of interest </li></ul><ul>...
MONEY MARKET INSTRUMENTS Certificate of Deposit Banker's Acceptance Repos Eurodollars Treasury Bills MONEY MARKET INSTRUME...
MONEY MARKET INSTRUMENTS <ul><li>Treasury Bills : The Treasury bills are the short term money market security that mature ...
CONTD… <ul><li>Banker's Acceptance : It is a short term credit investment . It is guaranteed by a bank to make payments. T...
Recent Reforms In Indian Money Market <ul><li>Deregulation of the Interest Rate </li></ul><ul><li>Money Market Mutual Fund...
Role of Central Bank (RBI) In Money Market <ul><li>Setting a necessary reserve ratio </li></ul><ul><li>Influence the suppl...
TOOLS OF CONTROL BY RBI <ul><li>Bank Rate : RBI (Reserve Bank of India) lends to the commercial banks through its discount...
CONTD… <ul><li>c)  Statutory Liquidity Requirements (SLR):  </li></ul><ul><li>Apart from the CRR, banks are required to ma...
FUNCTIONS OF RBI <ul><li>Banker of issue : -  </li></ul><ul><li>Under Section 22 of the Reserve Bank of India Act, the Ban...
CONTD… <ul><li>Controller of Credit : - </li></ul><ul><li>The Reserve Bank of India is the controller of credit i.e. it ha...
CONCLUSION <ul><li>The money market is one which serves the following objectives : - </li></ul><ul><li>Providing an equili...
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Money markets final.......2003

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Money markets final.......2003

  1. 1. ASMs Institute Of Management And Computer Studies Thane Project Guided By : PROF. Sheetal Madam MONEY MARKET AND ROLE OF CENTRAL BANKING
  2. 2. Group Members Sr No. Roll No. Name 01 62 Amit Ahire 02 94 Mithilesh Kurmi 03 98 Mangesh Maid 04 104 Vaibhav Mujumdar 05 106 Sagar Parkar 06 112 Prajwal Shetty
  3. 3. INTRODUCTION <ul><li>Money market is as a place for bigger organizations and government to handle their short term money requirements. The  money market  is a wholesale marketplace for the buying and selling of funds. </li></ul><ul><li>Money markets deal in short-term debt instruments, mature within a year or less, issued by governments, financial organizations and companies. </li></ul><ul><li>Money forms portion of the total treasury market that involves foreign exchange and permanent earnings. </li></ul><ul><li>The  money market  is a part of the fixed income market. money market specializes in a very short-term debt security. </li></ul>
  4. 4. DEFINITION <ul><li>A segment of the financial market in which financial instruments with high liquidity and very short maturities are traded. The money market is used by participants as a means for borrowing and lending in the short term, from several days to just under a year. Money market securities consist of negotiable certificates of deposit (CDs), bankers acceptances, U.S. Treasury bills, commercial paper, municipal notes, federal funds and repurchase agreements (repos). </li></ul><ul><li>According to the Reserve Bank of India , “money market is the centre for dealing, mainly of short term character, in money assets; it meets the short term requirements of borrowings and provides liquidity or cash to the lenders. It is the place where short term surplus investible funds at the disposal of financial and other institutions and individuals are bid by borrowers’ agents comprising institutions and individuals and also the government itself.” </li></ul>
  5. 5. The major players and their main role in the money market is listed below : Player Role Central Bank Intermediary Government Borrowers/Issuers Banks Borrowers/Issuers Discount Houses Market Makers Acceptance Houses Market Makers Fis Borrowers/Issuers MFs Lenders/Investors FIIs Investors Dealers Intermediaries Corporates Issuers
  6. 6. Characteristics of Money Market <ul><li>Dichotomic Structure </li></ul><ul><li>Seasonality </li></ul><ul><li>Multiplicity of Interest Rates </li></ul><ul><li>Lack of Organized Bill Market </li></ul><ul><li>Absence of Integration </li></ul><ul><li>High Volatility in Call Money Market </li></ul>
  7. 7. Drawbacks of Indian Money Market <ul><li>Absence of Integration </li></ul><ul><li>Multiple rate of interest </li></ul><ul><li>Insufficient Funds or Resources </li></ul><ul><li>Shortage of Investment Instruments </li></ul><ul><li>Shortage of Commercial Bill </li></ul><ul><li>Lack of Organized Banking System </li></ul><ul><li>Less number of Dealers </li></ul>
  8. 8. MONEY MARKET INSTRUMENTS Certificate of Deposit Banker's Acceptance Repos Eurodollars Treasury Bills MONEY MARKET INSTRUMENTS
  9. 9. MONEY MARKET INSTRUMENTS <ul><li>Treasury Bills : The Treasury bills are the short term money market security that mature in a year or less than that. The purchase price is less than the the face value. </li></ul><ul><li>Certificate of Deposit : The certificate of deposit are basically time deposits that are issued by the commercial banks with maturity periods ranging from 3 months to five years. The return on the certificate of deposit is higher than the Treasury Bills because it assumes a higher level of risk. </li></ul>
  10. 10. CONTD… <ul><li>Banker's Acceptance : It is a short term credit investment . It is guaranteed by a bank to make payments. The Banker's Acceptance are traded in the Secondary market. </li></ul><ul><li>Eurodollars : The Eurodollars are basically dollar- denominated deposits that are held in banks outside. </li></ul><ul><li>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. </li></ul>
  11. 11. Recent Reforms In Indian Money Market <ul><li>Deregulation of the Interest Rate </li></ul><ul><li>Money Market Mutual Fund (MMMFs) </li></ul><ul><li>Establishment of the DFI </li></ul><ul><li>Liquidity Adjustment Facility (LAF) </li></ul><ul><li>Electronic Transactions </li></ul><ul><li>Establishment of the CCIL </li></ul><ul><li>Development of New Market Instruments </li></ul>
  12. 12. Role of Central Bank (RBI) In Money Market <ul><li>Setting a necessary reserve ratio </li></ul><ul><li>Influence the supply of money through special deposits </li></ul><ul><li>Adjusting interest rate </li></ul><ul><li>Operation of the interest rate </li></ul><ul><li>Involve the money supply through operating on the open market </li></ul>
  13. 13. TOOLS OF CONTROL BY RBI <ul><li>Bank Rate : RBI (Reserve Bank of India) lends to the commercial banks through its discount window to help the banks meet depositor’s demands and reserve requirements. The interest rate the RBI charges the banks for this purpose is called bank rate. If the RBI wants to increase the liquidity and money supply in the market, it will decrease the bank rate and if it wants to reduce the liquidity and money supply in the system, it will increase the bank rate. The current rate is 6%. </li></ul><ul><li>(b) Cash Reserve Requirements (CRR): Every commercial bank has to keep certain minimum cash reserves with RBI. RBI can vary this rate between 3% and 15%. RBI uses this tool to increase or decrease the reserve requirement depending on whether it wants to affect a decrease or an increase in the money supply. The current rate is 6%. </li></ul>
  14. 14. CONTD… <ul><li>c) Statutory Liquidity Requirements (SLR): </li></ul><ul><li>Apart from the CRR, banks are required to maintain liquid assets in the form of gold, cash and approved securities. </li></ul><ul><li>RBI has stepped up liquidity requirements for two reasons: - Higher liquidity ratio forces commercial banks to maintain a larger proportion of their resources in liquid form and thus reduces their capacity to grant loans and advances. A higher liquidity ratio diverts the bank funds from loans and advances to investment in government and approved securities. </li></ul>
  15. 15. FUNCTIONS OF RBI <ul><li>Banker of issue : - </li></ul><ul><li>Under Section 22 of the Reserve Bank of India Act, the Bank has the sole right to issue bank notes of all denominations. The distribution of one rupee notes and coins and small coins all over the country is undertaken by the Reserve Bank as agent of the Government. The Reserve Bank has a separate Issue Department which is entrusted with the issue of currency notes. </li></ul><ul><li>Banker to the government : - </li></ul><ul><li>The second important function of the Reserve Bank of India is to act as Government banker, agent and adviser. The Reserve Bank is agent of Central Government and of all State Governments in India excepting that of Jammu and Kashmir. </li></ul>
  16. 16. CONTD… <ul><li>Controller of Credit : - </li></ul><ul><li>The Reserve Bank of India is the controller of credit i.e. it has the power to influence the volume of credit created by banks in India. It can do so through changing the Bank rate or through open market operations. </li></ul><ul><li>Custodian of Foreign Reserves : - </li></ul><ul><li>The Reserve Bank of India has the responsibility to maintain the official rate of exchange. Besides maintaining the rate of exchange of the rupee, the Reserve Bank has to act as the custodian of India's reserve of international currencies. </li></ul><ul><li>Bankers bank and Lendor of last Resort : - </li></ul><ul><li>The Reserve Bank of India acts as the bankers' bank. According to the provisions of the Banking Companies Act of 1949, every scheduled bank was required to maintain with the Reserve Bank a cash balance equivalent to 5% of its demand liabilities and 2 per cent of its time liabilities in India. </li></ul>
  17. 17. CONCLUSION <ul><li>The money market is one which serves the following objectives : - </li></ul><ul><li>Providing an equilibrium mechanism for ironing out short-term surplus and deficits. </li></ul><ul><li>Providing a focal point for central bank intervention for the influencing liquidity in the economy. </li></ul><ul><li>Providing access to users of short-term money to meet their requirements at a reasonable price </li></ul>

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