MBA Assignment 2020-2022

KOUSALI INSTITUTE OF MANAGEMENT STUDIES

DATE:13-09-21

Subject Code: B15 Assignment No: 03

Subject: Financial Markets & Services
Submitted by: Group 01
Reg No: 20MBA005, 20MBA007 & 20MBA011

Submitted To: Dr. Shivappa

 MONEY MARKET INSTRUMENTS
MONEY MARKET is a component of the economy which
provide short-term funds. The money market deals in short-term
loans, generally for a period of a year or less.
MONEY MARKET INSTRUMENTS
It is a mechanism that allows banks, businesses and the
government to meet large, but short-term capital needs at a low
cost.

Features
1 Liquidity
They are considered highly liquids they are fixed-income
securities which carry short maturity periods of a year or less.
2 Safety
Since the issuers of money market instruments have strong
credit ratings, it automatically means that the money instruments
issued by them will also be safe.
3 Discounted price
One of the main features of money market instruments is
that they are issued at a discount on their face value.
Functions
1 Provides funds
The money market instruments help to provide short-term
funds to the private and public institutions who need finance for
their working capital requirement. These instruments, in turn,
can help the development of trade, industry and commerce
within and outside the country.

2 Use of surplus funds

Money market instruments provide opportunity to the
banks and financial institutions to use their surplus funds
profitably for a small period of time.

3 No need to borrow from banks

In case of developed money market, there is no need to
borrow money from commercial and central bank. Most of the
commercial banks would rather prefer to recall their loans
recalling it from the central banks at a higher rate of interest.
4 Helps government
The money market instrument prove helpful to the
government in borrowing short term funds on the basis of
treasury bills at low interest rate.

INSTRUMENTS OF MONEY MARKET

CALL MONEY MARKET

It is also called as inter-bank call money market. The
bank prefer such type of investment because it is just like as
cash and more it also generates income in the form of interest.
This type of loan can be given for overnight and for a maximum
period of two weeks. In India main lenders of the funds in the
call money market are SBI, LIC, GIC, UTI, IDBI, NABARD
and other financial institutions and the main borrower are the
scheduled commercial banks.

TREASURY BILLS
When the government is in need of short term fund,
then they issue treasury bills through RBI. It is just like
promissory note or finance bill having a maturity of maximum
to one year. It is generally issued at discount and their maturity
is the face value. As it is issued by government, therefore it is
highly safe and contain high degree of liquidity.
Treasury bills are classified in two ways
• Ordinary treasury bills it is issued to public and other
financial institutions for meeting the short term requirement
of government.
• Adhoc treasury bills are sold through tender or aviation.
On the basis of periodicity, treasury bills are issued in three
types
I. 1 day’s treasury bills
II. 182 days’ treasury bills
III. 364 days’ treasury bills

COMMERCIALBILL
When the goods are sold on credit, the seller writes the
bill on buyer, the buyer accepts the bill by signing it to make the
payment of the amount due after the specified period. The
maturity of bill ranges from 3 months to 6months as maximum.
The commercial bills have the facility of getting discounted
and re-discounted. If suppose, the holder of the bill is in need of
funds before the maturity of the bill the he can get immediate
money on it by getting it discounted from banks, the banks will
en-cash the bill by deducting some % of margin on it.
COMMERCIAL PAPER (CP)
It is an unsecured promissory note, issued by private
companies, Public units, non-banking companies etc. for a fixed
maturity. It can be issued directly by the company to the investor
through banks. It is issued to individuals, banks, Corporates and
NRI’s. Usually private corporate companies, banks participate in
CP market.
The guidelines of RBI an issues of CP are
a) A company can issue CP only of it has:
i. A tangible net worth of not less than Rs.10 crores
as per the latest balance sheet
ii. A minimum current ratio of 1.33: 1
iii. A fund based working capital limit of Rs.25
Crores or more
iv. A debt servicing ratio closer to 2
v. The company is listed on stock exchange
vi. The issuing company would need to obtain P1
from CRISIL
b) CP shall be issued in multiples of Rs 25 lakhs but the
minimum amount to be invested by a single investor shall
be Rs 1 crore.
c) Minimum maturity period of 7 days and maximum period
of 6 moths.
d) It is issued in the form of usance promissory notes,
negotiatable by endorsement and delivery.
 e) Any person or banks or corporate bodies registered or
incorporated in India and corporate d bodies registered in
India and unincorporated bodies too can invest in CP

CERTIFICATE OF DEPOSITE (CD)

To raise large sum of money for short term period, this

instrument is issued by banks and financial institutions.
Certificate of deposit is negotiable and is marketable,
having specific value and maturity with grace period. CD’s
are subscribed to individuals corporations, trust,
associations and NRI’s.

PROMISSORY NOTES

The promissory note is the oldest credit instrument. It

is a written promise by the debtor to pay to creditor a
specified sum of money by an agreed specific future date,
usually within a year. Promissory notes are issued by
individuals, corporations and government agencies.