• Money Market

The money market is a market for short term funds which deals in monetary assets whose
period of maturity is upto one year.

Money market is a tool that manage the lending of short term funds (less than one year).
financial market in which financial instrument with high liquidity and very short maturities
are traded. helps in fulfilling the short term and very short term requirements of the companies,
banks, financial institution, government agencies and so forth.

Functions of Money Markets

The money market contributes to the economic stability and development of a country by
providing short-term liquidity to governments, commercial banks, and other large
organizations.

functions of the money market:

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 requirements. These funds are
provided by commercial banks, brokers, discount houses, and acceptance houses.

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. They include commercial banks
as well as large non-financial corporations, states and other local governments.

3. No need to borrow from banks

In case of a developed money market, there is no need to borrow money from commercial
and central bank. However, if there is a short of cash requirement, they can call in some of
their loans from the money market. Also, the most of the commercial banks would rather
prefer to recall their loans than recalling it from the central banks at a higher rate of
interest.
4. Helps Government
The money market instruments prove helpful to the government in borrowing short-term
funds on the basis of treasury bills at low interest rates. Besides, it would lead to inflationary
pressures in the economy if the Government had to issue paper money or borrow from the
central bank.

5. Helps in Monetary Policy

The existence of a well-developed money market will help in successfully implementing the
monetary policies of central bank. Is only through money market the central banks can
control the banking system and therefore Influence commerce and the industry.

6. Helps in Financial Mobility

The Monet market helps in financial stability by smoothening the transfer for funds from
one sector to another. And, financial mobility is important for the development of
commerce and industry.

7. Promotes Liquidity and Safety

Apart from encouraging savings and investments, the money market instruments promote
liquidity and safety of financial assets. Some of the money market instruments are an
important part of the monetary policy framework. RBI uses these short-term securities to
get liquidity in the market within the required range.

8. Economy in Use of Cash

The money market instruments can be considered as a convenient way to transfer funds
from one place to another. Money Market makes it easier for investors to dispose off their
surplus funds, retaining their liquid nature, and earn significant profits on the same.

9. Financing Trade
The money market provides financing to local and international traders who are in urgent
need of short-term funds. It provides a facility to discount bills of exchange, and this
provides immediate financing to pay for goods and services.
10. Growth of Industries

The money market provides an easy avenue where businesses can obtain short-term loans
to finance their working capital needs. Due to the large volume of transactions, businesses
may experience cash shortages related to buying raw materials, paying employees, or
meeting other short-term expenses.

Instruments/components of money market

The main instruments of money market are as follows:

l. Treasury Bills:
known as Zero Coupon Bonds
issued by the RBI on behalf of the Central Government
short-term requirement of funds
issued at a price which is lower than their face value
available for a minimum amount of Rs.25000 multiples
negotiable instruments
freely transferable.

Types of treasury bills

Depending on the tenure for which they are issued, treasury bills in India
can be any one of three types. Here is a closer look at the types of T-bills.

• 91-day treasury bills:

The maturity of these T-bills is 91 days. These securities are also auctioned
every week, and they are issued in multiples of Rs. 25,000.
 • 182-day treasury bills:
These T-bills mature 182 days after their issue date. They are auctioned
every other week and are sold in multiples of Rs. 25,000.

• 364-day treasury bills:

364-day treasury bills mature 364 days after issue, and they are also
auctioned every other week. The issue is made in multiples of Rs. 25,000.

Other types: (Ordinary Bill, Ad hoc TBs)

2. Commercial Paper:
maturity period of 15 days to one year
It is a short term unsecured promissory note
issued by large credit worthy companies to raise short term funds
at lower rates of interest than market rates.
negotiable instruments
transferable by endorsement and delivery
be issued of Rs.5 lakh or multiples

Features of Commercial Paper

1. short-term money market instrument comprising usance promissory note

with a fixed maturity,
2. It is a unsecured corporate debt of short term maturity.
3. Commercial paper is issued at a discount to face value basis but it can be issued
in interest bearing form.
4. pledge no assets
5. Commercial paper can be issued directly by a company to investors or through
banks/merchant banks.

3. Call Money:
maturity period of one day to 15 days
Call Money is a method by which banks borrow from each other to be able
to maintain the cash reserve ratio as per RBI
It is short term finance repayable on demand
used for interbank transactions
The interest rate paid on call money loans is known as the call rate.

Features of call money market

1. Call money is an instrument for ultra-short period management of funds and is

easily reversible.
 2. It is primarily a “telephone” market and is therefore, administratively convenient to
manage for both borrowers and lender.
3. Being an instrument of liability management, it provides incremental funds and
adds to the size of balance sheet of banks.

4. Certificate of Deposit:
short period ranging from 91 days to one year
issued to individuals
unsecured instrument issued in bearer form by Commercial Banks &
Financial Institutions
issue for raising money for a

Advantages of Certificate of Deposits

1. Certificate of deposits are the most convenient instruments to depositors

2. short term surpluses to earn higher return.
3. CDs also offer maximum liquidity as the are transferable by endorsement and delivery.
The holder can resell his certificate to another.
4. From the point of view of issuing bank,, it is vehicle to raise resource in times of need and
improve their lending capacity. The CDs are fixed term deposits which cannot be withdrawn
until the redemption date.
5. This is an ideal instrument for the banks with short term surplus found to invest at
attractive.

5. Commercial Bill:
bill of exchange
used to finance the working capital requirements of business firms.
A seller draws the bill on the buyer when sold on credit
These bills can be discounted with a bank
if the seller needs funds before the bill maturity

Types of Bills
Many types of bills are in circulation in a bill market. They can be
broadly classified asfollows:

1. Demand and Usince Bills: Demand bills are others called sight bills. No time
of payment is specified andhence they are payable at sight. Usince bills are
called time bills. These bills are payable immediately after the expiry of
time period mentioned in the bills.
 2. Clean Bills and Documentary Bills: When bills have to be accompanied by
documents of title to goods like Railways, receipt, Lorry receipt, Bill of
Lading etc. the bills are called documentary bills. When bills are drawn
without accompanying any documents they are called clean bills. In such a
case, documents will be directly sent to the drawee.

3. Inland and Foreign Bills: Inland bills are those drawn upon a person
resident in India and are payable in India. Foreign bills are drawn outside
India an they may be payable either in India or outside India. They may be
drawn upon a person resident in India also. Foreign boils have their origin
outside India. They also include bills drawn on India made payable outside
India.

4. Export and Foreign Bills: Export bills are those drawn by Indian exports on
importers outside India and import bills are drawn on Indian importers in
India by exports outside India.

5. Indigenous Bills: Indigenous bills are those drawn and accepted according
to native custom or usage of trade. These bills are popular among
indigenous bankers only. In India, they called „hundis‟ the hundis

6. Accommodation Bills and Supply Bills: If bills do not arise out of genuine
trade transactions, they are called accommodation bills. Two parties draw
bills on each other purely for the purpose of mutual financial
accommodation. These bills are discounted with bankers and the proceeds
are shared among themselves.

Listing of company/securities

Every company which operates in a market of high demand has a good scope of
growing and scaling. From the inception of a company, most companies are
privately limited. Private limited means that these companies are funded
privately, or the source of the capital is just normal private people or
organisations behind the promoting chair. Some companies, however, go ahead
and become big national companies that need huge cash flows to fund their
activities.

In corporate finance, a listing refers to the company's shares being on the list of
stocks that are officially traded on a stock exchange.
 The Process of Listing (Initial Public Offering)
Now we will discuss the cherry of the cake, the process of listing. It is also known
by the name of initial public offering because it is the first time (Initial) when the
shares will be offered to the public. This is a very strict process and both the
National and the Bombay stock exchange take it very heartedly. It goes without
saying at this point that the company which is trying to list itself has to follow
dedicated guidelines of the desired exchange. However, the most common
checkpoints to be ticked are listed here -

1. Appointing a merchant banker

Merchant bankers are also called Book Running Lead Managers. It includes
conducting some efforts to check all the legal compliances at the company filing
for the IPO and issuing a due diligence certificate.

He also has to underwrite shares, which is agreeing to buy all the unsold shares.
He then has to help the company to reach a decision on a reasonable price band
of the offering.

issue are Morgan Stanley India, Goldman Sachs (India), ICICI Securities, Axis
Capital, JP Morgan, Citigroup Global Markets India and HDFC Bank.

2. Applying to SEBI with a registration document

Not to mention that everything at a listing is done through the rules of the
securities exchange board of India. After getting the work done by a merchant
banker, you have to pitch a registration document to SEBI. That document should
contain what the company does and what is the motive of the listing along with
all other mandated information. After all the process, the company should look
for an affirmative response from the regulating body to go ahead and issue a
DRHP.

3. Draft red herring prospectus (DRHP)

DRHP stands for Draft red herring prospectus. It is a disclosure document that
describes information about the IPO to the general public. It contains a lot of
information about the company and the issue price and that is often too deep in
finance terminologies. The most important and imperative information that is
present in a DRHP is as follows -

1. Estimated IPO size

2. Everything about the shares that are to be issued
3. The risk involved in the business
4. Why the company wants to go public and how does it plan to utilise the
funds
5. Revenue model and all sorts of expenditure
6. Complete financial statements
7. Management relevant information

4. Marketing the IPO

After DRHP is issued and is made public, it is important to float some marketing
about the IPO. The company would want to reach the maximum audience of
investors for the purpose of its public offering. So they take support of print
media and other sorts of media to market the IPO more.

5. Fixing the price band

Fixing the price band is super imperative when preparing for an IPO. The price is
the only number which the people would see first. So, it is important to set the
number not too high and not too low to attract the right amount of people on
the board of directors. This is helmed by the existing shareholders and is helped
by experts like merchant bankers. Once the price band is fixed, that becomes the
base on which the company is listed on the stock exchange.

6. Book building
Book building is the process of capturing and recording investor demand for
shares. For example, if the price band is between Rs.100 and Rs.150 then the
public can choose. They can choose what is the right amount per share that the
company deserves. The process of

book building is to collect these price points along with respective qualities of
shares and demand. Book building is perceived as an effective price discovery
method.

7. Closing date
After the book building process is done and completed, it is said as the closing
date. Generally, it is open for two to three days and maybe more in some
exceptions. Thus, then the price point is selected which has the most bids from
investors. That price becomes the listing share price of the company.

8. Listing day
Then comes the day when the company actually gets listed on the stock
exchange. That becomes the day when the shares start to be traded freely in the
market.

When the shares are being bid, they lay a foundation for future selling values.
This happens when investors choose the desired price from the given price band.
Trading and Settlement Procedure on a Stock Exchange

Step 1. Selecting the Broker

Step 2. Opening the demat account

Step 3. Placing the Order

Step 4. Connecting to the Stock Exchange

Step 5. Executing the Order

Step 6. Issuing of Contract note

Step 7. Delivery of Cash/Securities —> Pay-in day

Step 8. Settlement before T+2 or T+1

Step 9. Delivery of security/cash —> Pay-out day

Step 10. Delivery of security in Demat form

SEBI Guidelines for issue of securities by companies in Primary Market:

1. All applications should be submitted to SEBI in the prescribed form.

2. Applications should be accompanied by true copies of industrial license.
3. Cost of the project should be furnished with scheme of finance.
4. Company should have the shares issued to the public and listed in
one or more recognized stock exchanges.
5. Where the issue of equity share capital involves offer for
subscription by the public for the first time, the value of equity
capital, subscribed capital privately held by promoters, and their
friends shall be not less than 15% of the total issued equity capital.
6. An equity-preference ratio of 3:1 is allowed.
7. Capital cost of the projects should be as per the standard set
with a reasonable debt-equity ratio.
8. New company cannot issue shares at a premium. The dividend
on preference sharesshould be within the prescribed list.
9. All the details of the underwriting agreement.
10. Allotment of shares to NRIs is not allowed without the approval of RBI.
11. Details of any firm allotment in favor of any financial institutions.
12. Declaration by secretary or director of the company.
13. A new company which has not completed 12 months of
commercial operations willnot be allowed to issue shares at a
premium.
14. If an existing company with a 5-year track record of consistent
profitability, ispromoting a new company, then it is allowed to
price its issue.
15. A draft of the prospectus has to be given to the SEBI before public issue.
16. The shares of the new companies have to be listed either with
OTCEI or any otherstock exchange.
 SEBI guidelines for Secondary market

1. All the companies entering the capital market should give a

statement regarding fundutilization of previous issue.

2. Brokers are to satisfy capital adequacy norms so that the member

firms maintain adequatecapital in relation to outstanding positions.

3. The stock exchange authorities have to alter their bye-laws with regard
to capital adequacynorms.

4. All the brokers should submit with SEBI their audited accounts.

5. The brokers must also disclose clearly the transaction price of

securities and thecommission earned by them. This will bring
transparency and accountability for the brokers.

6. The brokers should issue within 24 hours of the transaction contract notes to the
clients.

7. The brokers must clearly mention their accounts details of funds

belonging to clients andthat of their own.

8. Margin money on certain securities has to be paid by claims so

that speculativeinvestments are prevented.

9. Market makers are introduced for certain scrips by which brokers

become responsible forthe supply and demand of the securities and the
price of the securities is maintained.

10. A broker cannot underwrite more than 5% of the public issue.

11. All transactions in the market must be reported within 24 hours to SEBI.

12. The brokers of Bombay and Calcutta must have a capital adequacy of
Rs. 5 lakhs and forDelhi and Ahmadabad it is Rs. 2 lakhs.

13. Members who are brokers have to pay security deposit and this is fixed
by SEBI.