1.

Money Market
A) A segment of the financial market in which financial instruments with high liquidity and
very short maturities are traded. The money market is used by participants as a means for
borrowing and lending in the short term, from several days to just under a year. Money market
securities consist of negotiable certificates of deposit (!s", bankers acceptances, #.$. Treasury
bills, commercial paper, municipal notes, federal funds and repurchase agreements (repos".The
money market is used by a wide array of participants, from a company raising money by selling
commercial paper into the market to an investor purchasing !s as a safe place to park money in
the short term. The money market is typically seen as a safe place to put money due the highly
liquid nature of the securities and short maturities, but there are risks in the market that any
investor needs to be aware of including the risk of default on securities such as commercial
paper.
The money market is different from the capital market. The differences can be read in the
article %inancial Markets& apital 's. Money Market and (etting to )now the Money Market.
The money market consists of financial institutions and dealers in money or credit who wish to
either borrow or lend. *articipants borrow and lend for short periods of time, typically up to
thirteen months. Money market trades in short+termfinancial instruments commonly called
,paper., This contrasts with the capital market for longer+term funding, which is supplied
by bonds and equity.
The core of the money market consists of interbank lending-banks borrowing and lending to
each other using commercial paper, repurchase agreements and similar instruments. These
instruments are often benchmarked to (i.e. priced by reference to" the .ondon /nterbank 0ffered
1ate (./201" for the appropriate term and currency.
%inance companies typically fund themselves by issuing large amounts of asset+backed
commercial paper (A2*" which is secured by the pledge of eligible assets into an A2*
conduit. 34amples of eligible assets include auto loans, credit card receivables,
residential5commercial mortgage loans, mortgage+backed securities and similar financial assets.
ertain large corporations with strong credit ratings, such as (eneral 3lectric, issue commercial
paper on their own credit. 0ther large corporations arrange for banks to issue commercial paper
on their behalf via commercial paper lines.
/n the #nited $tates, federal, state and local governments all issue paper to meet funding needs.
$tates and local governments issue municipal paper, while the #$ Treasury issues Treasury
bills to fund the #$ public debt&
Trading companies often purchase bankers6 acceptances to be tendered for payment to
overseas suppliers.
1etail and institutional money market funds
2anks
entral banks
ash management programs
Merchant banks
Functions of the money market[edit]
The money market functions are&
7897:9
1. Financing Trade:
Money Market plays crucial role in financing both internal as well as international trade.
ommercial finance is made available to the traders through bills of e4change, which are
discounted by the bill market. The acceptance houses and discount markets help in financing
foreign trade.
2. Financing Industry:
Money market contributes to the growth of industries in two ways&
(a" Money market helps the industries in securing short+term loans to meet their working
capital requirements through the system of finance bills, commercial papers, etc.
(b" /ndustries generally need long+term loans, which are provided in the capital market.
;owever, capital market depends upon the nature of and the conditions in the money market.
The short+term interest rates of the money market influence the long+term interest rates of the
capital market. Thus, money market indirectly helps the industries through its link with and
influence on long+term capital market.
3. rofita!"e In#estment:
Money market enables the commercial banks to use their e4cess reserves in profitable
investment. The main objective of the commercial banks is to earn income from its reserves as
well as maintain liquidity to meet the uncertain cash demand of the depositors. /n the money
market, the e4cess reserves of the commercial banks are invested in near+money assets (e.g.
short+term bills of e4change" which are highly liquid and can be easily converted into cash. Thus,
the commercial banks earn profits without losing liquidity.
$. %e"f&%ufficiency of 'ommercia" (ank:
!eveloped money market helps the commercial banks to become self+sufficient. /n the
situation of emergency, when the commercial banks have scarcity of funds, they need not
approach the central bank and borrow at a higher interest rate. 0n the other hand, they can meet
their requirements by recalling their old short+run loans from the money market.
). *e"+ to 'entra" (ank:
Though the central bank can function and influence the banking system in the absence of
a money market, the e4istence of a developed money market smoothens the functioning and
increases the efficiency of the central bank.
Money market helps the central bank in two ways&
(a" The short+run interest rates of the money market serves as an indicator of the
monetary and banking conditions in the country and, in this way, guide the central bank to adopt
an appropriate banking policy,
(b" The sensitive and integrated money market helps the central bank to secure quick and
widespread influence on the sub+markets, and thus achieve effective implementation of its
policy.
2. %ystematic ,ithdra,a" +"an -%.)

<hat is a $ystematic <ithdrawal *lan ($<*"
A $ystematic <ithdrawal *lan ($<*" is a facility that allows an investor to withdraw
money from an e4isting mutual fund at predetermined intervals. The money withdrawn
from a systematic withdrawal plan can be reinvested in another portfolio or it can be used
as a source of regular income. $ystematic withdrawal plans are used by investors to
create a regular flow of income from their investments. /nvestors looking for income at
periodical intervals usually invest in these funds. 0ften, a systematic withdrawal plan is
used to fund e4penses during retirement.
$ystematic withdrawal plans is of advantage to investors who require liquidity as it
allows account holders to access their money e4actly when they need it. This makes it
easier for the account holders to carry out their financial plans and meet their goals.
*o, does %. ,ork/
<hen you want to sell mutual fund you usually have two options either sell all at once or
opt for a systematic withdrawal plan. $ystematic withdrawal plan, allows you to
withdraw a fi4ed sum of money every month or quarter depending on the option chosen
and instructions given by you.
As per your instructions the Mutual fund will redeem an equivalent amount of mutual
funds from your account as per the prevailing =et asset 'alue (=A'". This process helps
investor to get a fi4ed amount of money every month or quarter.
.et6s understand this process with the help of an e4ample&+
.et6s say you have 8,>>> units in a Mutual %und scheme. ?ou have given instructions to
the fund house that you want to withdraw 1s. @,>>> every month through $<*. =ow let6s
assume that on A !ecember, the =et Asset 'alue (=A'" of the scheme is 1s. B>.
#nder $<*, withdrawals can be fi4ed or variable amounts at regular intervals. These
withdrawals can be made on a monthly, quarterly, semi+annual or annual schedule. The
holder of the plan may choose withdrawal intervals based on his or her commitments and
needs.
.hat are the ty+es of %.s/
#nder $<*, withdrawals can be fi4ed or variable amounts at regular intervals. These
withdrawals can be made on a monthly, quarterly, semi+annual or annual schedule. The
holder of the plan may choose withdrawal intervals based on his or her commitments and
needs.
%.isusua""ya#ai"a!"eint,oo+tions:
Fi0ed .ithdra,a": #nder this you specify amount you wish to withdraw from your
investmentonamonthly5quarterlybasis.
A++reciation .ithdra,a": #nder this you can withdraw your appreciated amount on a
monthly5quarterlybasis
Ad#antagesofa%ystematic.ithdra,a""an-%.)
1egu"ar income & + $<* is good way to get a fi4ed amount of money periodically i.e.
monthlyorquarterly.
Ta0 (enefit& + 1ather than selling all the units at once, spreading the income across
multiple intervals can lower the total ta4. /t is a ta4 efficient way of receiving regular
income.
A#oid market f"uctuations& + /t saves an investor from market fluctuations, as regular
withdrawalaverageoutreturnvalue.
'onc"usion
A systematic withdrawal plan allows the account holder a certain level of independence
from market fluctuations. 2y making periodic withdrawals, account holders are able to
enjoy average return values that often e4ceed average sale prices. /n this way, systematic
withdrawal plan holders are able to secure higher unit prices than those attainable by
withdrawing everything at once.
3. 20+"ain the nature and sco+e of Indian financia" system
A)
$. 'ommercia" a+ers
A)An unsecured, short-term debt instrument issued by a
corporation, typically for the fnancing of accounts receivable,
inventories and meeting short-term liabilities. Maturities on
commercial paper rarely range any longer than 270 days. The
debt is usually issued at a discount, refecting prevailing market
interest rates. Commercial paper is not usually backed by any
form of collateral, so only frms with high-quality debt ratings
will easily fnd buyers without having to ofer a substantial
discount (higher cost) for the debt issue.
A major beneft of commercial paper is that it does not need to be
registered with the Securities and Exchange Commission (SEC) as
long as it matures before nine months (270 days), making it a very
cost-efective means of fnancing. The proceeds from this type of
fnancing can only be used on current assets (inventories) and are
not allowed to be used on fxed assets, such as a new plant, without
SEC involvement.
The use of commercial paper has been adopted by every state in the United
States except Louisiana.
[2]
At the end of 200! more than "!#00 companies in the United States issued
commercial paper. As of $ctober %"! 200&! the U.S. 'ederal (eserve reported
seasonally ad)usted fi*ures for the end of 200#+ there ,as -".#&0# trillion .short/
scale! or "!#&0!#00!000!0000 in total outstandin* commercial paper1 -&0".%
billion ,as 2asset bac3ed2 and -#.4 billion ,as not1 -"52.# billion of the latter
,as issued by non/financial corporations! and -&"5.# billion ,as issued by
financial corporations.
[%]
$utside of the United States the international 6uro/7ommercial 8aper 9ar3et
has over -:00 billion in outstandin*s! made up of instruments denominated
predominately in euros! dollars and sterlin*.
[4]
7ommercial paper is a lo,er/cost alternative to a line of credit ,ith a ban3. $nce
a business becomes established! and builds a hi*h credit ratin*! it is often
cheaper to dra, on a commercial paper than on a ban3 line of credit.
;evertheless! many companies still maintain ban3 lines of credit as a 2bac3up2.
<an3s often char*e fees for the amount of the line of the credit that does
not have a balance. =hile these fees may seem li3e pure profit for ban3s! in
some cases companies in serious trouble may not be able to repay the loan
resultin* in a loss for the ban3s.
Advanta*e of commercial paper+
>i*h credit ratin*s fetch a lo,er cost of capital.
=ide ran*e of maturity provide more flexibility.
?t does not create any lien on asset of the company.
Tradability of 7ommercial 8aper provides investors ,ith exit options.
@isadvanta*es of commercial paper+
?ts usa*e is limited to only blue chip companies.
?ssuances of commercial paper brin* do,n the ban3 credit limits.
A hi*h de*ree of control is exercised on issue of 7ommercial 8aper.
Stand/by credit may become necessary
). 3escri!e in detai" the method of trading in a stock e0change