The money market is a wholesale market for short-term debt instruments with a maturity of usually less than one year. It provides liquidity and allows interest rates to be determined by market forces. Key players include banks, mutual funds, corporations, and the Reserve Bank of India. Instruments of the money market include treasury bills, commercial paper, certificates of deposit, and call/notice money. The money market serves to balance demand and supply of short-term funds and provides a benchmark for interest rates. The Reserve Bank uses tools like repo rate, reverse repo rate, reserve requirements, and open market operations to influence liquidity and achieve its monetary policy objectives of price stability and growth.

1. Money
Market

2. Characteristics of Money
Market
 Wholesale market of short term debt
instruments
 Principal feature is honour
 Need-based market
Interest rates are market determined
Main players are: RBI, Mutual funds, banks,
DFHI, corporates, NBFCs, STCI, state
governments, PFs, PSUs, primary dealers and
NRIs

3. Money Market
Instruments
 Treasury bills
 Call/Notice money market- Call(overnight)
and short notice (up to 14 days)
 Certificates of deposit
 Commercial bills
Commercial paper

4. Treasury bills
 Short-term instruments issued by RBI on
behalf of the government
Repaid at par on maturity, issued at a discount
 Negotiable and highly liquid securities
 Absence of default risk
 Assured yield, low transaction cost
 Security for SLR purposes
Treasury bills can be purchased by any one
(including individuals).

5.  An unsecured short-term promissory note
issued at a discount
 Issuers
creditworthy corporates
primary dealers
All India financial institutions
Discount is freely determined by market
forces
Maturity period 7 days to upto one year.
Can be issued to individuals, banks,
companies etc.
An attractive source of working capital funds
for corporate as the rates are less.
Rating requirement min. P2 of CRISIL.
Commercial Paper

6.  Deepak Nitrite issues commercial paper of Rs 30
crore
 Jul 17, 2015 at 15:10 | Source: Moneycontrol.com
 Deepak Nitrite has informed that the Commercial Paper
of Rs 30 crore issued on April 17, 2015, has been repaid
on July 16, 2015. Further, the Company has issued
Commercial Paper (CP) for Rs 30 crore value dated July
17, 2015. This has been subscribed by SBI Fund
Management Private Limited having maturity on
October 15, 2015.

7.  Deepak Nitrite issues commercial paper
of Rs 30 crore
 Jul 17, 2015 at 15:10 |
Source: Moneycontrol.com
 Deepak Nitrite has informed that the
Commercial Paper of Rs 30 crore issued on
April 17, 2015, has been repaid on July 16,
2015. Further, the Company has issued
Commercial Paper (CP) for Rs 30 crore value
dated July 17, 2015. This has been subscribed
by SBI Fund Management Private Limited
having maturity on October 15, 2015.

8. A short-term, negotiable and self liquidating
instrument with low risk.
Bills of exchange are negotiable instruments
drawn by the seller on the buyer for the value of
the goods delivered to him. Such bills are called
trade bills.
When trade bills are accepted by commercial
banks, they are called commercial bills.
Bank discounts this bill by keeping a certain
margin and credit the proceeds.
Maturity period of bill varies from 30 days, 60
Commercial Bills

9. An unsecured, negotiable, short- term time deposit
issued by commercial banks and development
financial institutions.
 Issued at a discount to face value.
 Minimum amount Rs 1 lakh and in multiples
thereof
 Maturity period
15 days to one year for banks
1 to 3 years for FIs
 Transferable by endorsement
 Banks to maintain appropriate reserve
requirement on issue of CDs.
 Issued in demat form
 Investors– individuals, corporations, Mutual Funds
Certificates of Deposit

10.  Banks borrow/lend money for a period ranging between
1 and 14 days.
When borrowed or lent-
for 1 day- overnight/call money
for 2 to 14 day- notice money
 No collateral security required
 Highly liquid, risky, and volatile market
 Banks trade money to adhere to CRR requirement
 Call rate is freely determined by market forces
RBI intervenes in call money market through repo
transactions
Inverse relationship between call rates and short term
money market instruments
Call/Notice Money Market

11. Table 2: Interest Rates in the Money Market
(Percent per annum: Annual Averages)
Repo
Rate
Call
Rate
CBLO
Rate
Market
Repo
Rate
91 day
T-Bills
364-day
T Bills
CP
Rate
CD
Rate
1 2 3 4 5 8 9 6 7
2000-01 11.2 9.1 - - 9.0 9.8 10.8 9.6
2001-02 8.5 7.2 - - 7.0 7.3 9.2 8.0
2002-03 7.7 5.9 - - 5.8 5.9 7.7 6.6
2003-04 7.0 4.6 - - 4.6 4.7 6.1 5.3
2004-05 6.0 4.7 - - 4.9 5.2 5.8 5.0
2005-06 6.2 5.6 5.3 5.4 5.7 6.0 6.7 6.1
2006-07 7.0 7.2 6.2 6.3 6.6 7.0 8.5 7.9
2007-08 7.8 6.1 5.2 5.5 7.1 7.5 9.3 9.1
2008-09 7.4 7.1 6.1 6.5 7.1 7.2 10.7 9.2
2009-10 4.8 3.2 2.7 2.8 3.6 4.4 5.3 5.4
2010-11 5.9 5.7 5.4 5.5 6.2 6.6 8.7 7.7
2011-12 8.0 8.1 7.8 7.9 8.4 8.4 10.1 9.6
2013-14 (so far) 8.0 8.1 7.9 8.0 8.2 8.1 9.3 9.0

12. To provide
 a balancing mechanism for demand &
supply
 the focal point for central bank for
influencing liquidity and interest rates
 reasonable access to short-term funds
 serves as a benchmark for long term
interest rates
Functions of Money Market

13. Objectives of the monetary policy
 Price stability
 Growth
Instruments of Monetary Policy
 Reserve requirements: CRR (4.75%) & SLR(24%)
 Interest rates
 Bank rate :9%(Long-term rate)
 Repo rate: 8%
 Reverse repo rate: 7%
 Refinance from RBI
open market operations
Repo
Link Between Money Market and
Monetary Policy in India