The money market allows participants to borrow and lend in the short term through various financial instruments with high liquidity and short maturities ranging from overnight to one year. Common instruments traded in the money market include treasury bills, commercial paper, certificates of deposit, bankers' acceptances and repurchase agreements. The money market consists of sub-markets like the call money market, commercial bills market, acceptance market, and treasury bill market that collectively make up the short-term funding market.

1. PRESENTED BY : PAWAN KUMAR

2. The money market is where financial instruments with high liquidity and very
short maturities are traded. It is used by participants as a means for borrowing
and lending in the short term, with maturities that usually range from overnight to
just under a year. Among the most common money market instruments are
Eurodollar deposits, negotiable certificates of deposit (CDs),
bankers acceptances, U.S. Treasury bills, commercial paper, municipal notes,
federal funds and repurchase agreements (repos).
As per RBI definitions “ A market for short terms financial assets that are close
substitute for money, facilitates the exchange of money in primary and secondary
market”.

3.  To provide a parking place to employ short term surplus funds.
 To provide room for overcoming short term deficits.
 To enable the central bank to influence and regulate liquidity in
the economy through its intervention in this market.
 To provide a reasonable access to users of short-term funds to
meet their requirement quickly, adequately at reasonable cost.

4. Money Market consists of a number of sub-markets which
collectively constitute the money market. They are,
 Call Money Market
 Commercial bills market or discount market
 Acceptance market
 Treasury bill market

5. A variety of instrument are available in a developed money
market. In India till 1986, only a few instrument were available.
They were
• Treasury bills
• Money at call and short notice in the call loan market.
• Commercial bills, promissory notes in the bill market.

6.  Commercial papers.
 Certificate of deposit.
 Banker's Acceptance
 Repurchase agreement
 Money Market mutual fund

7.  Call money market is that part of the national money market where
the day to day surplus funds, mostly of banks are traded in.
 They are highly liquid, their liquidity being exceed only by cash.
 The loans made in this market are of the short term nature.
 Banks borrow from other banks in order to meet a sudden demand
for funds, large payments, large remittances, and to maintain cash
or liquidity with the RBI. Thus, to the extent that call money is used
in India for the purpose of adjustment of reserves.

8.  CALL RATE IN INDIA has reached as high a level as 30% in December
1973.
 It is an alarming level for any short-term rate of interest to reach, and as
bank defaulted in a major way in respect of cash and liquidity requirements
at that time due to the prohibitively high cost of call money, it became
necessary to regulate call rates within reasonable limits.
 Indian Banks’ Association (IBA) in 1973 fixed a ceiling of 15% on the level
of call rate.
 The IBA lowered this ceiling of 15% to 12.5% in March 1976, 10 % in June
1977, and 8.6% in March 1978, and 10.0% in April 1980.
 And current call rate in India is 8%.

9.  Treasury bills (TBs), offer short-term investment opportunities,
generally up to one year.
 They are useful in managing short-term liquidity.
 Types of treasury bills through auctions are 91- Day, 182- day,
364- day, and 14- day TBs

10. Types of TBs Day of Auction Day of Payment
91-day Wednesday Following Friday
182-day Wednesday of non-
reporting week
Following Friday
364-day Wednesday of reporting
week
Following Friday

11.  Funds for working capital required by commerce and industry are mainly
provided by banks through cash credits, overdrafts, and
purchase/discontinuing of commercial bills.
 BILL OF EXCHANGE: The financial instrument which is traded in the bill
market of exchange. It is used for financing a transaction in goods that
takes some time to complete.
 It shows the liquidity to make the payment on a fixed date when goods are
bought on credit.
 Accordingly to the Indian Negotiable Instruments Act, 1881, it is a written
instrument containing as unconditional order, signed by the maker,
directing a certain person to pay a certain sum of money only to, or to the
order of, a certain person, or to the bearer of the instrument.

12.  INLAND BILLS:
 Be drawn or made in India, and must be payable in India
 Be drawn upon any person resident in India
 FOREIGN BILLS:
 Drawn outside India and may be payable in and by a party outside India, or may be
payable in India or drawn on a party resident in India
 Drawn in India and made payable outside India.
 A related classification of bills is export bills and import bills

13.  A banker's acceptance is a short-term investment plan created by a company or firm with
a guarantee from a bank.
 It is a guarantee from the bank that a buyer will pay the seller at a future date. A good
credit rating is required by the company or firm drawing the bill.
 This is especially useful when the credit worthiness of a foreign trade partner is unknown.
 The terms for these instruments are usually 90 days, but this period can vary between 30
and 180 days. Companies use the acceptance as a time draft for financing imports,
exports and trade.
 In India, there are neither specialised acceptance agencies for providing this service on a
commission basis nor is it provided to any significant extent by commercial banks.
 Under the bill market schemes introduced by RBI in 1952, banks are required to select the
borrowers after careful examination of their means, respectability, and dealings for
conversion of their advances in to bills.

14.  DISCOUNTING SERVICE
 The central banks help banks in their liquidity management by providing them
discounting and refinancing facilities.
 The RBI are in abundance liquidity (funds) to banks on occasions when liquidity
shortages threaten economic stability.
 The central bank performs his function through its discount window or discounting
mechanism.
 Bank borrow funds temporarily at the discount window of the central bank.
 They are permitted to borrow or are given the privilege of doing so from the central
bank against certain types of eligible paper, such as the commercial bill or treasury bill,
which the central bank stands ready to discount for the purpose of financial
accommodation to banks.

15.  Commercial Paper (CP) is an unsecured money market instrument issued in the form of a
promissory note.
 It was introduced in India in 1990 with a view to enabling highly rated corporate borrowers/ to
diversify their sources of short-term borrowings and to provide an additional instrument to
investors.
 Only company with high credit rating issues CP’s
 Subsequently, primary dealers and satellite dealers were also permitted to issue CP to enable
them to meet their short-term funding requirements for their operations.
 Primary dealers (PDs) and the All-India Financial Institutions (FIs) are eligible to issue CP.
 CP is very safe investment because the financial situation of a company can easily be predicted
over a few months.
 CP can be issued for maturities between a minimum of 15 days and a maximum up to one year
from the date of issue.

16.  Only a scheduled bank can act as an IPA for issuance of CP.
 Individuals, banking companies, other corporate bodies registered or incorporated
in India and unincorporated bodies, Non-Resident Indians (NRIs) and Foreign
Institutional Investors (FIIs) etc. can invest in CPs.
 Amount invested by single investor should not be less than Rs.5 lakh (face value).
 However, investment by FIIs would be within the limits set for their investments by
Securities and Exchange Board of India
 CP will be issued at a discount to face value as may be determined by the issuer.
 The investor in CP is required to pay only the discounted value of the CP by means
of a crossed account payee cheque to the account of the issuer through IPA.

17.  With a view to further widening the range of money market instruments and
give investors greater flexibility in deployment of their short-term surplus
funds, Certificates of Deposit (CDs) were introduced in India in 1989.
 Certificate of Deposit (CD) is a negotiable money market instrument and
issued in dematerialised form or as a Usance Promissory Note against
funds deposited at a bank or other eligible financial institution for a
specified time period

18.  Scheduled commercial banks excluding Regional Rural Banks
(RRBs) and Local Area Banks (LABs)
 Select all-India Financial Institutions that have been permitted by
RBI to raise short-term resources within the umbrella limit fixed by
RBI.

19.  Minimum amount of a CD should be Rs.1 lakh, i.e., the minimum deposit
that could be accepted from a single subscriber should not be less than
Rs.1 lakh and in the multiples of Rs. 1 lakh thereafter.
 INVESTORS:
CDs can be issued to individuals, corporations, companies, trusts, funds,
associations, etc. Non- Resident Indians (NRIs) may also subscribe to CDs,
but only on non- repatriable basis, which should be clearly stated on the
Certificate. Such CDs cannot be endorsed to another NRI in the secondary
market.
MATURITY:
 The maturity period of CDs issued by banks should be not less than 7 days and not
more than one year.
 The FIs can issue CDs for a period not less than 1 year and not exceeding 3 years
from the date of issue.

20. MONEY MARKET
ORGANISED
STRUCTURE
RBI DHFI
COMMER
CIAL
BANKS
DEVELOP
MENT
BANK
UNORGNISED STRUCTURE
Indigenous
banks
Money
lenders
Chits
CO-OPERATIVE SECTOR
STATE
CO-
OPERATI
VE
BANKS
STATE
LAND
DEVELOP
MENT
BANKS