1. Money Market

2. Introduction

As per RBI Definitions,
◦ “A market for short term financial assets that are
close substitutes for money, facilitates the
exchange of money in primary and secondary
markets”


The money market is a mechanism that deals
with the lending and borrowing of short term
funds.
A segment of the financial market in which
financial instruments with high liquidity and
very short term maturities are traded.

3. Functions of Money Market



Provide a balancing mechanism to even out
the demand for and supply of short-term funds
Provide a focal point for central bank
intervention for influeincing liquidity and
general level of interest rates in the economy.
Provide reasonable access to suppliers and
users of short-term funds to fulfill their
borrowings and investment requirments at an
efficient market claring price.

4. Money Market Instruments






Treasury Bills
Call/ Notice Money Market
Commercial Papers
Certificates of Deposits
Commercial Bills
Collateralized
Borrowings
Obligations
and
Lending

5. Treasury Bills

6. Meaning



They are short term instruments issued by the
Reserve Bank on behalf of the government to
tide over the short-term liquidity shortfalls.
It is used by the governments to raise short
term funds to bridge seasonal or temporary
gaps between its receipts and expenditures.
They are repaid at par on maturity.

7. Features





Negotiable securities
Highly liquid
Absence of default risk
An assured risk, low transaction cost and are
eligible for inclusion in the securities for SLR
They are not issued in scrip form. The
purchases and sales are effected through the
Subsidiary General Ledger (SGL) account.

8. Who can invest in T-Bills?

Reserve Bank of India, mutual funds, financial
institutions, primary dealers, provident funds,
corporates, foreign banks and FIIs

9. Types of T-Bills

On-tap Bills
◦ Discontinued form April 1, 1997.

Ad hoc Bills
◦ Discontinued form April 1, 1997.

Auctioned Bills
◦ First introduced in April 1992.
◦ The RBI receives bids in an auction from various
participants and issue the bills subject to some
cut off limits.
◦ At present, RBI issues T-Bills of three maturities
–
 91 days
 182 days
 364 days

10. How T-Bills
are sold?
Sale of T-Bills
Competitive Bids
Participants submit
their bids through
auction
Multiple-price auction
Each winning
bidder pays the
price it bid
Non-competitive Bids
Participants are not
allowed to bid
Uniform-price auction
Each winning
bidder pays the
uniform price
decided by the RBI

11. To Sum up…
Treasury Bills are available for a minimum amount
of Rs.25,000 and in multiples of Rs.25,000.
 Treasury bills do not bear any coupon and
hence, issued at discount and redeemed at par.
 The T-bills are issued by the RBI through auction
method. It declares auction calender at the starting
of the financial year, mentioning the amount of
issue, the day of the auction and the day of the
payment.
 91-day T-bills are auctioned every week on
Wednesdays and payments are made on following
friday.
 182-day and 364-day T-bills are auctioned every
alternate week on Wednesday and payments are


12. Commercial Paper

13. Meaning
A commercial paper is an unsecured
short-term promissory note issued at a
discount by creditowrthy
corporates, primary dealers and all
India financial institutions.
 It is also known as finance
paper, industrial paper, or corporate
paper.


14. Who can invest in Commercial
Papers?
Individuals
 Banks *
 Corporates
 NRIs
 FIIs


15. Company conducts internal check on its eligibility
to issue CPs
Decides issue size
Applies to CRISIL for rating of CP issue
Appoints issueing and paying agent
Issuer executes agreement with depository for
issue of CPs in dematerialised form
The
process for
issuing a
CP
Prepares documents pertaining to CP issue
Gets quotes from investors along with their
depository participant ID and Client ID
Finalises allotment of CPs; Adjudicates on stamp
duty on the jumbo CP certificate documentation
Instruct depository to credit CPs to IPA’s CP
allotment account; IPA issues CP certificates to
investors
Company gives investor details such as DP ID,
client ID and allotted quantity to registrar and
transfer (R&T) / IPA credit to investor’s account
the next day
Investor’s account is credited with the CPs a day
after IPA gets clear funds in its account
Receives HV cheque
from Investors
Funds cleared in HV
clearing the next day

16. Guidelines for issuance of a
CP
Eligibility
 Rating requirement
 Maturity
 Denomination
 Issuing and Paying Agent
 Investment in a CP
 Mode of issuance


17. Commercial Bills

18. Meaning

Commercial bills are negotiable
instruments drawn by the seller on the
buyer which are, in turn, accepted and
discounted by commercial banks.

19. Types
Demand Bill
 Usace Bill
 Clean Bill
 Documentry Bill
 Inland Bill
 Foreign Bill
 Hundi
 Derivative Usance Promissory Note


20. Features:
It can be traded by offering the bills
for rediscounting.
 Repayable on maturity of bill.
 High degree of liuidity.


21. Certificate of Deposites

22. Meaning

They are short term tradable time
deposits issued by commercial banks
and financial institutions.

23. Guidelines for issue of CDs
Eligibility
 Minimum size of issue and
denomination
 Who can subscribe
 Maturity
 Discount rate
 Buy-back


24. Factors limiting the growth of
CDs
Limited participants
 High interest rate
 CDs are not listed.
 Minimum level of investment is high
 Stamp duty


25. Call / Notice Money

26. Meaning

Call Money Market
◦ Here, funds are transacted on overnight
basis.

Notice Money Market
◦ Funds are borrowed / lent for a period
between 2 to 14 days.

27. Importance
Without collateral
 Flexibility to banks


28. Participants

Lenders
◦ DFHI, STCI, GIC, IDBI, NABARD, Mutual
Funds

Borrowers
◦ Brokers & dealers in the securities / bill
market
◦ Individuals of high financial status

Borrowers and Lenders
◦ Schedule and non-schedule commercial
banks
◦ Foreign banks, State, district and urban co