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Money market


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Money Markek

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Money market

  3. 3.  What is Money Market? Objective of Money Market? Importance of Money Market? Instrument of Money Market?
  4. 4.  A market for short terms financial assets that areclose substitute for money, facilitates the exchangeof money in primary and secondary market.The money market is a mechanism that dealswith the lending and borrowing of short termfunds (less than one year).A segment of the financial market in whichfinancial instruments with high liquidity and veryshort maturities are traded.
  5. 5. It doesn’t actually deal in cash or money but dealswith substitute of cash like trade bills, promissorynotes & government papers which can convertedinto cash without any loss at low transaction cost.It includes all individual, institution andintermediaries.
  6. 6.  Transaction have to be conducted without the help ofbrokers. It is not a single homogeneous market, it comprises ofseveral submarket like call money market, acceptance & billmarket. The component of Money Market are the commercialbanks, acceptance houses & NBFC (Non-banking financialcompanies). In Money Market transaction can not take place formallike stock exchange, only through oral communication,relevant document and written communication transactioncan be done.
  7. 7. To provide a reasonable access to users of short-termfunds to meet their requirement quickly, adequately atreasonable cost.To provide a parking place to employ short term surplusfunds.
  8. 8.  Development of trade & industry. Development of capital market. Smooth functioning of commercial banks. Effective central bank control. Formulation of suitable monetary policy. Non inflationary source of finance to government.
  9. 9. Now, in addition to the above the following newinstrument are available: Commercial papers. Treasury BillsCertificate of deposit.
  10. 10.  CP is a short term unsecured loan issued by acorporation typically financing day to day operation. CP is very safe investment because the financialsituation of a company can easily be predicted over a fewmonths. Only company with high credit rating issues CP’s.
  11. 11.  (T-bills) are the most marketable money market security. They are issued with three-month, six-month and one-year maturities. T-bills are purchased for a price that is less than their facevalue; when they mature, the government pays theholder the full face value. T-Bills are so popular among money market instrumentsbecause of affordability to the individual investors.
  12. 12. A CD is a time deposit with a bank.Like most time deposit, funds can not withdrawnbefore maturity without paying a penalty.CD’s have specific maturity date, interest rate and it canbe issued in any denomination.The main advantage of CD is their safety.Anyone can earn more than a saving account interest.