The document discusses India's financial system and monetary economics. It describes the formal and informal financial sectors, with the formal sector regulated by organizations like RBI, SEBI, and IRDA. It then covers various components of the monetary system like banks, money markets, capital markets, and non-bank financial intermediaries. Specific money market instruments like treasury bills, commercial papers, certificates of deposits are explained. Key monetary concepts around credit, inflation, and the roles of the central bank and monetary/fiscal policies are also briefly discussed.

1. MONETARY ECONOMICS:
Financial System

2.  Financial system:
 Formal financial sector:presence of an
orgnaised,instituional and regulated system
 Informal financial sector Is an
unorganised,non instituional and noin
regulated system
 Resulting in “ financial dualism”
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3.  Formal sector comes
under the purview of
the misnitsry of
finance(MoF),RBI and
Securities and
Exchange Board of
India(SEBI) &
Insurance Regulatory
and Development
Authority(IRDA).
 Infrmal scetor
:consists of
moneylenders,pawn
brokers,funds or
associations doing
finance business,chit
fund companies,local
brokers etc
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4. 4
Monetary Economics studies about……
 Banks
 Money market
 Capital Market
 Non Bank Financial Intermediaries
 Unregulated Credit Markets

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And aspects of stock market like……….
 Stock Exchanges
 BSE
 NSE
 NIFTY
 SENSEX
 Bulls &Bears

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Some basic stuff
 Credit
 Liquidity
 Inflation
 Monetary Policy
 Fiscal Policy

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“Inflation is too much money chasing too
few goods”
 Demand pull or cost push inflation

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Banking
 Central Bank
 Commercial Banks
 Development Banks
 Cooperative banks

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1. Accepting of deposits
 Current deposit Account - withdraw money at any time – no interest
 Fixed deposit - money deposited in the account is for very short
period. – high rate of interest – term deposit – matures at a definite
period.
 Savings deposit Account – some restrictions. – minimum amount of
money – interest rate is low.
2. Granting of loans and advances
 Loans
- Overdraft – draft in excess of credit balance – for the reliable
customer.

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Reserve Bank of India
 Currency Authority
 Banker to Govt
 Bankers’ Bank
 Controller of money supply & credit
 Exchange Management & control

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Non Bank Financial Intermediaries (NBFIs)
 Mutual Funds (UTI)
 Insurance companies
(LIC & GIC)
 Provident/Pension
Funds
 Post Offices Savings
 Other NBFIs
 Money Lenders
 Chit funds
 Hire Purchase/Leasing
companies
Regulated Unregulated

12. Financial System

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Financial System
 Financial institutions
 Commercial banks, RBI, NBFIs, companies
 Financial Assets
 Currency, deposits, cheques, bills, bonds, shares,
 Equities, debentures, T-bills, certificates of deposits,
commercial papers
 Financial markets
 Money market (short term funds)
 Capital market (medium & long term funds)
 Primary Market (New Issue Market)
 Secondary Market (Stock Market)

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Money Market

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Money Market
 Market in which short
term funds are
borrowed and lent
( maturity below one
year) are called as
money market.
 Call Money Market
 Commercial Bill Market
 Treasury Bill Market
 Certificate of Deposit
 Commercial Paper
Submarkets

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Call Money Market
 Deals with one day loans (called as call loans
or call money) as well as loans up to 15 days
 Who are the Participants?
 usually banks, Mutual funds, large corporations
and insurance companies are able to participate
in this market.
borrowers are banks who are temporarily
short of funds
Suppliers are banks with temporary excess of
cash

17.  The rate at which the call loan is lent is called
as call rate.
 The rate of interest is always higher than
savings account rate.
 The loans in the call money market are very
short, usually lasting no longer than a week
and are often used to help banks meet
reserve requirements.
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18. Money lent for a day is called as call money
and for a period more than a day is called as
notice money and money lent for 15 days or
more days is called term money.
Helps in maintaining liquidity, controlling
inflation, fill the gaps or temporary
mismatches in funds and also determining
the interest rates in the economy
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Commercial Bill market
 Bill of Exchange (BOE) is like a promissory
note ,which has a maturity period of 3
months.
 “I owe you so amount of money after 3
months from the present date.”
 Either the BOE holder could wait till it gets
matured or get it discounted or get encashed
through the process of discounting

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Treasury Bill market
 T Bills are short term debt instruments issued
by the Govt to get funds.
 Who are the participants?
 Borrowers: mostly commercial banks
 Lender: Govt departments
 Sold by RBI through auction
 Maturity: 91days,182 days,365 days
 Zero default risk and hence more safer

21. Treasury Bills
 Treasury bills, commonly referred to as T-Bills are issued
by Government of India against their short term
borrowing requirements with maturities ranging between
14 to 364 days.
 All these are issued at a discount-to-face value. For
example a Treasury bill of Rs. 100.00 face value issued
for Rs. 91.50 gets redeemed at the end of it's tenure at
Rs. 100.00.
 Who can invest in T-Bill
 Banks, Primary Dealers, State Governments, Provident
Funds, Financial Institutions, Insurance Companies,
NBFCs, FIIs (as per prescribed norms), NRIs can invest
in T-Bills.

22. • At present, the Government of India issues
three types of treasury bills through auctions,
namely, 91-day, 182-day and 364-day. There
are no treasury bills issued by State
Governments.
• Eligible to be included for SLR purpose
• Amount
• Treasury bills are available for a minimum
amount of Rs.25,000 and in multiples of Rs.
25,000. Treasury bills are issued at a
discount and are redeemed at par.

23.  Gilt Edged security Government security
that is a claim on the government and is a
secured financial instrument which
guarantees certainty of both capital and
interest. These securities are free of default
risk or credit risk, which leads to low market
risk and high liquidity.
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Certificate of Deposit (CD)
 CDs are short-term borrowings issued by
banks and are freely transferable by
endorsement and delivery.
 Borrowed mainly by banks
• Minimum period 7 days
• Maximum period 1 year

25.  CD s are issued generally when banks face
tight liquidity,and are issued at relatively high
interest rates.
 CDs are issued when the deposit growth is
sluggish but credit demand is high.
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Commercial Paper(CP)
 Direct short term finance issued by large
creditworthy companies
 Borrowed by banks, companies
 Maturity : 7 days to 3 months to one year
 Also known as Industrial paper,corporate
paper and industrial paper.

27. Commercial Paper
 Commercial Paper (CP) is an unsecured money market instrument
issued in the form of a promissory note.

Who can issue Commercial Paper (CP)
Highly rated corporate borrowers
To whom issued
 CP is issued to and held by individuals, banking companies, other
corporate bodies registered or incorporated in India and
unincorporated bodies, Non-Resident Indians (NRIs) and Foreign
Institutional Investors (FIIs).
 Denomination: min. of 5 lakhs and multiple thereof.

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Thank You