The document provides an overview of the money market, which involves the buying and selling of short-term debt instruments that mature within one year. It discusses how money markets are used for investing through money market funds, individual sweep accounts, and the types of instruments traded in money markets, including commercial paper, banker's acceptances, treasury bills, repurchase agreements and more. It also covers how central banks use money markets to implement monetary policy and how interest rates, credit ratings, and other factors work in money markets.

1. MONEY MARKET Presented by – Group 4 Abhishek Pangaria Altaf Siddiqui Rajendra Inani Shikhar Mohan Tarandeep Singh Vaibhav Samant

2. What is Money Market? Buying & selling of debt instruments maturing in one year or less Highly liquid Very low risk RBI definition “ A market for short terms financial assets that are close substitute for money, facilitates the exchange of money in primary and secondary market”.

3. Investing in money markets Done usually through MM funds Cost of borrower credit appraisal is high compared to returns & period MM funds help diversify risk of individual companies Reduce investor costs & risks

4. Individual Sweep Accounts Multipurpose accounts with banks or stockbrokers with the assets used for paying current bills, investing etc. Idle cash is automatically ‘swept’ into money markets or overnight investments

5. Interest rates & prices Rate maybe fixed or adjustable Due to the short maturity period, interest rate risks are low Interest rates are low in line with the low risk profile of the instrument Returns slightly higher than bank savings

6. Types of Instruments Commercial paper Banker’s acceptance Treasury bills Government agency notes Local government notes Inter bank loans Time deposits International agency paper Repos Futures & the money markets

7. Commercial paper Short term debt of a private sector firm or govt. sponsored corporation Term 90 days to 9 months Typically used to fund working capital

8. Banker’s acceptance Acceptance is a promissory note given by a non financial firm to a bank in return for a loan Banks resell these at a discount in the money market Usually tied to specific goods or order A method to use the strong credit standing of the bank

9. Treasury Bills Referred as T-Bills Issued by national governments Maturity less than 1 year Form a large part of the money market traded instruments

10. Government agency notes Instruments floated by government sponsored agencies like development banks, housing finance, agri finance, etc

11. Local government notes Notes issued by state governments or its agencies Approval from the national authorities required Example tax anticipation notes

12. Inter Bank Loans Loans between non affiliated banks Can be across international boundaries Overnight loans Maybe be used to feed demand for loans to customers or to meet reserves requirements

13. Time Deposits Also called certificate of deposit or CD These are interest bearing bank deposits attracting penalty on premature withdrawal

14. International Agency Paper Issued by world bank, Inter-American Development Bank and other similar organizations Borrowed from different countries Use interest rates and exchange rates

15. Repos Short for repurchase agreements A combination of 2 transactions, First, seller sell securities & promises to buy it back at a specified future date at a higher price Second, the repo is unwound by as the issuer buys back The return rate of the transaction is called repo rate In the reverse repo the buyer and the seller are interchanged

16. Futures & the money market Futures used a tool for hedging and cash management Interest rate risks can also be hedged

17. Trading Operation All systems electronically connected Banks & non bank dealer enter into the contract committing to complete the transaction through clearing houses Clearing houses are government agencies or cooperative institutions owned by the banks and dealers Acts as custodian of the securities Strives to make transactions real time

18. Credit Ratings Rating agencies offer opinions about the credit worthiness of the borrower Issuer seeks rating before issuing the note Credit ratings affect the interest rate offered on the security Rating may be issued for an issuer as a whole or for individual instruments

19. Monetary Policy The central bank uses the money market to implement its monetary policy It controls supply of money by altering the rates

20. Central Bank Interest Rate In some countries the central banks are allowed to lend directly to the money markets These rates are generally less attractive than those available in the private sector

21. Spreads It is the difference between uncollateralized loans and repos It informs about the credit worthiness of the borrower

22. Other terms Call rate / overnight rate – rate paid on overnight bank deposit Prime rate / Prime lending rate / PLR – Rate charged to the best customers. It’s the lowest or floor rate offered by a bank Mortgage rate – Changes in the mortgate rates are immediately passed on to the customers

23. Thank you