This document defines and describes the money market. It states that the money market deals with short-term lending and borrowing of funds with maturities of less than one year. It lists the key characteristics of the money market, including short-term funds, a highly organized banking system, and flexibility. The document also discusses the functions of the money market in facilitating economic development, government borrowing, and savings and investment. Finally, it outlines several common money market instruments, such as treasury bills, commercial paper, certificates of deposit, and repurchase agreements.

1. ADITI SHARMA
PRATHAM KHURANA
DELHI INSTITUTE OF ADVANCED STUDIES

2. MONEY MARKET
⚫As per RBI guidelines A market for short terms
financial assets that are close substitute for money,
facilitates the exchanges of money in primary and
secondary market”.
⚫The money market is the mechanism that deals with
the lending and borrowing of short term funds( less
than one year)
⚫A segment of the financial market in which financial
instruments with high liquidity and very short
maturities are traded.

3. CHARACTERISTICS OF
A MONEY MARKET.
⚫Short term funds
⚫Maturity period
⚫Conversion of cash
⚫No formal place
⚫Sub – markets
⚫Highly organized banking system
⚫Existence of secondary market
⚫Wholesale market
⚫Flexibility
⚫Presence of central bank

4. FUNCTIONS OF MONEY
MARKET
⚫ Economicdevelopment
⚫ Profitable Investment
⚫ Borrowings by the Government
⚫ Importance For Central Bank
⚫ Mobilizationof Funds
⚫ SavingsAnd Investment
⚫ Self-sufficiency Of Commercial
Banks

6. MONEY MARKET
INSTRUMENTS
⚫Investment in money market is done through
money market instruments.
⚫Money market instrument meets short term
requirements of the borrowers and provides
liquidity to the lenders
⚫The mostactivepartof the money market is the
market forovernightcall and term money
between banksand institutionsand repo
transactions

7. 1.GOVERNMENT SECURITIES
(G- Secs)
⚫Issued by the Government forraising a public
loanoras notified in theofficial Gazette.
⚫Maturityranges from of 2-30 years.
⚫G-secsconsistof Government Promissory Notes,
Bearer Bonds, Stocks or Bonds, Treasury Bills or
Dated Government Securities.
⚫Nodefaultrisk as thesecuritiescarrysovereign
guarantee.
⚫Ample liquidityas the investorcan sell the
security in the secondary market

8. 2. MONEY MARKET AT
CALL AND SHORT NOTICE
⚫Moneyatcall isa loan that is repayableon
demand, and moneyatshort notice is repayable
within 14 daysof serving a notice.
⚫Participants are banks & all other Indian
Financial Institutionsas permitted by RBI.
⚫Banks borrowcall funds foravarietyof reasons to
maintain their CRR, to meet their heavy
payments, toadjust their maturity mismatch etc.

9. 3. TREASURY BILLS
⚫Short term (up to one year) borrowing
instrumentsof the Governmentof India.
⚫Enable investors to park theirshort term surplus
fundswhile reducing their market risk.
⚫Issued atadiscountto facevalue. The return to
the investor is the difference between the
maturityvalueand issue price.
⚫RBI issues T-Bills forthreedifferent maturities: 91
days, 182 daysand 364 days

10. 4. CERTIFICATES OF DEPOSITS
⚫A CD is a time deposit, financial product
commonlyoffered toconsumers by banks.
⚫CDsare negotiable instrument.
⚫Financial Institutionsareallowed to issue CDs for
a period between 1 yearand up to 3 years.
⚫normallygivea higherreturn than Bank term
deposit, and are rated by approved rating
agencies.

11. 5.COMMERCIAL BILLS
⚫Commercial bill is ashort term, negotiable, and
self-liquidating instrumentwith low risk.
⚫Written instrumentcontaining an unconditional
order.
⚫Once the buyersignifies hisacceptanceon the bill
itself it becomes a legal document.
⚫Commercial bill is ashort term, negotiable, and
self-liquidating instrumentwith low risk.

12. 6. COMMERCIAL PAPER
⚫Commercial Paper is a money-market security
issued (sold) by large banksand corporations to
get money to meetshort termdebtobligations .
⚫Commercial paper is usuallysold atadiscount
from facevalue.
⚫Interestrates fluctuatewith market
conditions, butare typically lowerthan banks‘
rates.

13. 7.Repurchase Agreements
⚫ Repo or Reverse Repo are transactions or short
term loans in which twopartiesagree tosell and
repurchasethesamesecurity.
⚫Theyare usuallyused forovernight borrowing
⚫Repo/Reverse Repo transactionscan bedoneonly
between the parties approved by RBI and in RBI
approved securities