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VIDYA V. VISWANATH
Mar Athanasios College For Advanced Studies, Tiruvalla.
MONEY MARKET
 Money market instruments are those
  instruments, which have a maturity period of less
  than one year.
 Geoffrey Crowther in his book” An outline of
  Money” has stated “Money market is a collective
  name given to the various firms and institutions
  that deal with various grades of near money”.
 Reservoir of short term funds.
Characteristics of a
developed money market.
 A developed commercial banking system.
 Presence of a central bank.
 Sub-markets
 Near money assets
 Availability of ample resources
 Integrated interest rate structure
Functions of money market

 Economic development – Money market
    assures supply of funds; financing is done
    through discounting of the trade
    bills, commercial banks, acceptance houses
    and brokers.
   Profitable Investment – the excess reserves of
    commercial banks invested in near money
    assets.
   Borrowings by the Government – short term
    funds at very low interest.
   Importance For Central Bank – If the money
    market is well developed, the central bank
    implements the monetary policy successfully.
   Mobilization of Funds – helps in transferring
    funds from one sector to another.
   Savings And Investment – encouraging savings
    and investment by promoting liquidity and
    safety of financial assets.
   Self-sufficiency Of Commercial Banks –
    commercial banks can meet their financial
    requirements by recalling some of their loans.
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 most active part of the money market is the
  market for overnight call and term money
  between banks and institutions and repo
  transactions
1.GOVERNMENT SECURITIES
(G- Secs)

 Issued by the Government for raising a public
    loan or as notified in the official Gazette.
   Maturity ranges from of 2-30 years.
   G-secs consist of Government Promissory Notes,
    Bearer Bonds, Stocks or Bonds, Treasury Bills or
    Dated Government Securities.
   No default risk as the securities carry sovereign
    guarantee.
   Ample liquidity as the investor can sell the
    security in the secondary market
2. MONEY MARKET AT CALL AND
SHORT NOTICE
 Money at call is a loan that is repayable on
  demand, and money at short notice is repayable
  within 14 days of serving a notice.
 Participants are banks & all other Indian
  Financial Institutions as permitted by RBI.
 Banks borrow call funds for a variety of reasons to
  maintain their CRR, to meet their heavy
  payments, to adjust their maturity mismatch etc.
3. TREASURY BILLS
 Short term (up to one year) borrowing
  instruments of the Government of India.
 Enable investors to park their short term surplus
  funds while reducing their market risk.
 Issued at a discount to face value. The return to
  the investor is the difference between the
  maturity value and issue price.
 RBI issues T-Bills for three different maturities: 91
  days, 182 days and 364 days
4. CERTIFICATES OF
DEPOSITS

 A CD is a time deposit, financial product
  commonly offered to consumers by banks.
 CDs are negotiable instrument.
 Financial Institutions are allowed to issue CDs for
  a period between 1 year and up to 3 years.
 normally give a higher return than Bank term
  deposit, and are rated by approved rating
  agencies.
5.COMMERCIAL BILLS
 Commercial bill is a short term, negotiable, and
  self-liquidating instrument with low risk.
 Written instrument containing an unconditional
  order.
 Once the buyer signifies his acceptance on the bill
  itself it becomes a legal document.
 Commercial bill is a short term, negotiable, and
  self-liquidating instrument with low risk.
6. COMMERCIAL PAPER
 Commercial Paper is a money-market security
  issued (sold) by large banks and corporations to
  get money to meet short term debt obligations .
 Commercial paper is usually sold at a discount
  from face value.
 Interest rates fluctuate with market
  conditions, but are typically lower than banks‘
  rates.
7.Repurchase Agreements
 Repo or Reverse Repo are transactions or short
  term loans in which two parties agree to sell and
  repurchase the same security.
 They are usually used for overnight borrowing
 Repo/Reverse Repo transactions can be done only
  between the parties approved by RBI and in RBI
  approved securities
Money market instruments

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Money market instruments

  • 1. VIDYA V. VISWANATH Mar Athanasios College For Advanced Studies, Tiruvalla.
  • 2. MONEY MARKET  Money market instruments are those instruments, which have a maturity period of less than one year.  Geoffrey Crowther in his book” An outline of Money” has stated “Money market is a collective name given to the various firms and institutions that deal with various grades of near money”.  Reservoir of short term funds.
  • 3. Characteristics of a developed money market.  A developed commercial banking system.  Presence of a central bank.  Sub-markets  Near money assets  Availability of ample resources  Integrated interest rate structure
  • 4. Functions of money market  Economic development – Money market assures supply of funds; financing is done through discounting of the trade bills, commercial banks, acceptance houses and brokers.  Profitable Investment – the excess reserves of commercial banks invested in near money assets.  Borrowings by the Government – short term funds at very low interest.
  • 5. Importance For Central Bank – If the money market is well developed, the central bank implements the monetary policy successfully.  Mobilization of Funds – helps in transferring funds from one sector to another.  Savings And Investment – encouraging savings and investment by promoting liquidity and safety of financial assets.  Self-sufficiency Of Commercial Banks – commercial banks can meet their financial requirements by recalling some of their loans.
  • 6.
  • 7. 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 most active part of the money market is the market for overnight call and term money between banks and institutions and repo transactions
  • 8. 1.GOVERNMENT SECURITIES (G- Secs)  Issued by the Government for raising a public loan or as notified in the official Gazette.  Maturity ranges from of 2-30 years.  G-secs consist of Government Promissory Notes, Bearer Bonds, Stocks or Bonds, Treasury Bills or Dated Government Securities.  No default risk as the securities carry sovereign guarantee.  Ample liquidity as the investor can sell the security in the secondary market
  • 9. 2. MONEY MARKET AT CALL AND SHORT NOTICE  Money at call is a loan that is repayable on demand, and money at short notice is repayable within 14 days of serving a notice.  Participants are banks & all other Indian Financial Institutions as permitted by RBI.  Banks borrow call funds for a variety of reasons to maintain their CRR, to meet their heavy payments, to adjust their maturity mismatch etc.
  • 10. 3. TREASURY BILLS  Short term (up to one year) borrowing instruments of the Government of India.  Enable investors to park their short term surplus funds while reducing their market risk.  Issued at a discount to face value. The return to the investor is the difference between the maturity value and issue price.  RBI issues T-Bills for three different maturities: 91 days, 182 days and 364 days
  • 11. 4. CERTIFICATES OF DEPOSITS  A CD is a time deposit, financial product commonly offered to consumers by banks.  CDs are negotiable instrument.  Financial Institutions are allowed to issue CDs for a period between 1 year and up to 3 years.  normally give a higher return than Bank term deposit, and are rated by approved rating agencies.
  • 12. 5.COMMERCIAL BILLS  Commercial bill is a short term, negotiable, and self-liquidating instrument with low risk.  Written instrument containing an unconditional order.  Once the buyer signifies his acceptance on the bill itself it becomes a legal document.  Commercial bill is a short term, negotiable, and self-liquidating instrument with low risk.
  • 13. 6. COMMERCIAL PAPER  Commercial Paper is a money-market security issued (sold) by large banks and corporations to get money to meet short term debt obligations .  Commercial paper is usually sold at a discount from face value.  Interest rates fluctuate with market conditions, but are typically lower than banks‘ rates.
  • 14. 7.Repurchase Agreements  Repo or Reverse Repo are transactions or short term loans in which two parties agree to sell and repurchase the same security.  They are usually used for overnight borrowing  Repo/Reverse Repo transactions can be done only between the parties approved by RBI and in RBI approved securities