2. FINANCIAL MARKETS
• The market where financial assets are created
or transferred.
• Financial Assets : Claim to payment of a sum
of money in the future or periodic payment in
the form of interest or dividend.
• Financial markets are basically classified under
two heads : Primary market & Secondary
market. Another classification would be the
Money market and the Capital market.
3. FINANCIAL MARKETS
• The money market deals with all transactions in
short term instruments (with a period of maturity
of one year or less like T-bills, BOE etc.)where as
the capital market deals with the transactions
financial assets are created or transferred.
• Financial Assets : Claim to payment of a sum of
money in the future or periodic payment in the
form of interest or dividend.
• Financial markets are basically classified under
two heads : Primary market & Secondary market.
Another classification would be the Money
market and the Capital market.
4. FINANCIAL MARKETS
• The money market deals with all transactions
in short term instruments (with a period of
maturity of one year or less like T-bills, BOE
etc.)where as the capital market deals with
the transactions related to long term
instruments (with a period of maturity above
one year like the corporate debentures, Govt.
bonds etc) and equity and preferential stock.
5. MONEY MARKETS
• One of the important functions of a well
developed money market is to channel savings
into short term productive investments like
working capital. Call money markets, T-bills
markets, Market for commercial paper and
Certificate of deposits are some of the
examples of a Money market.
6. CALL MONEY MARKETS
• The Call money market forms a part of national
money market, where day to day surplus funds,
mostly of banks are traded. The call money loans
are very short term in nature and the maturity
period of these loans vary from 1 to 15 days. The
money that is lent for one day in the market is
known as Call money and if it exceeds one day
(but less than 15 days) it is referred to as Notice
money. In this market any amount could be lent
or borrowed at a convenient interest rate which is
acceptable to the borrower and the lender. These
loans are considered as highly liquid as they are
repayable on demand at the option of either the
lender or the borrower.
7. CALL MONEY MARKETS-purpose
• The general market borrows as a stop gap
arrangement to bridge the time gap between
receipt and payment of funds.
• The banks borrow for :
(a) Fill the temporary gaps or mismatches that
arise, as the banks normally lend out of the
deposits they mobilise.
(b)Meet the CRR .
(c) Meet sudden demand of funds which may
arise due to large payments and
remmittances.
8. CALL MONEY MARKETS-purpose
• Banks usually borrow from the market to
avoid the penal interest rate which is imposed
on them for not meeting CRR requirements.
Hence, Call money essentially serves the
purpose of maintaining the short term
liquidity position of the banks.
• LOCATION : In India, call money markets are
mainly located in the commercial centers such
as Mumbai, Kolkata, Chennai, Delhi,
Ahmedabad. Mumbai & Kolkata contribute
the most of the call money.
9. CALL MONEY MARKETS-participants
• IDBI, NABARD, ICICI, EXIM BANK, SIDBI, MANY
MUTUAL FUNDS, RBI & OTHER COMMERCIAL
BANKS.
• Participants in this market are split in to two
categories. The first, comprises of those who
can borrow and also lend in this market such
as RBI and its commercial banks. The second
comprises of only lenders like NBFC’s and
Mutual funds. (They cannot borrow from this
market).
10. TREASURY BILLS
• T-bills are raised to meet the requirement of
short term funds of the Government of India.
Investors prefer T-bills because of high
liquidity, assured returns, no default risk, no
capital depreciation and eligibility for
statutory requirements.
• SIZE : The T-bills are issued for a minimum of
Rs.25000/- and multiples thereof. The T-bills
are issued at a discount and redeemed at par.
11. TREASURY BILLS
• In India, till April’1992 T-bills of 182 days
maturity were issued along with 91 days T-
bills. Now, these have been phased out in
favour of 364 days T-bills.
• In 1997, in order to enhance the depth of
money market in India, the RBI decided to
introduce 14 day and 28 day T-bills alongwith
91, 182 and 362 days T-bills.
12. COMMERCIAL PAPER
A money market instrument in the advanced
countries, to raise short term funds.
Introduced in India in 1989 by the RBI on the
recommendation of Vaghul Working Group.
In USA , only the highest rated and
financially sound companies can issue
Commercial papers.
