MONEY MARKET

PRESENTATION BY, MEGHANA

MONEY MARKET
The money market is that part of a financial

market which deals in the borrowing and

lending of short term loans generally for a

period of less than or equal to 365 days. It is

a mechanism to clear short term monetary transactions in an economy.

The Indian money market is divided into two parts:

UNORGANISED SECTOR ORGANISED SECTOR

Unregulated nonbank financial intermediaries >Finance companies >Chit funds >Nidhis Indigenous bankers Moneylenders

RBI Commercial banks Foreign banks Co-operative banks Finance corporations Mutual funds Discount and Finance House of India (DFHI)

UNORGANISED SECTOR OF THE INDIAN MONEY MARKET

Differing rate of interest

Unregulated Irregular

UNREGULATED NON-BANK FINANCIAL INTERMEDIARIES

LOAN COMPANIES ( FINANCE COMPANIES)

Loan companies are financial institutions that provide banking services without meeting the legal definition of a bank, i.e. one that does not hold a banking license.

 CHIT FUNDS
"Chit means a transaction whether called chit, chit fund, chitty, kuri or by any other name by or under which a person enters

into an agreement with a specified of persons that every one of

them shall subscribe a certain sum of money by way of periodical instalments over a definite period and that each such subscriber shall, in his turn, as determined by lot or by auction or by tender or in such other manner as may be specified in the chit agreement, be entitled to the prize amount".

 NIDHIS
Nidhis operate particularly in South India.

They are a kind of mutual benefit funds. The

usually deal with small amount of money. The

nidhis are highly localised single office

institutions.

INDIGENOUS BANKERS
Indigenous bankers constitute the ancient banking system of India. They have been carrying on their age-old banking operations in different parts of the country under different names. In Chennai, these bankers are called Chettys ; in Northern India Sahukars, Mahajans and Khatnes; in Mumbai, Shroffs and Marwaris; and in

Bengal, Seths and Banias. According to the Indian Central Banking

Enquiry Committee, an indigenous banker or bank is defined as an individual or private firm which receives deposits, deals in hundies or engages itself in lending money.

MONEYLENDERS
A moneylender is a person or group who offers small personal loans at high rates of interest. The high interest rates charged by them is justified in many cases by the risk involved. They play an active role in lending in places with less access to banking activities or in situations where

borrowers do not have good credit history.

ORGANISED SECTOR OF THE INDIAN MONEY MARKET

Fairly integrated, developed and organised Constitutes both nationalised and the private sector commercial banks

PRINCIPLE CONSTITUENTS OF THE ORGANISED SECTOR

THE CALL MONEY MARKET

The call money market is an important segment of

the money market where uncollateralized

borrowing and lending of funds takes place on

overnight basis. Participants in the call money

market currently include scheduled commercial banks, cooperative banks etc.

 THE TREASURY BILL MARKET

The market which deals in treasury bills is known as the treasury bill market. In India, treasury bills are short-term liability of the central government.

 THE REPO MARKET

Repo is a money market instrument which helps in collateralised short-term borrowing and lending through sale/purchase operations in debt instruments. Repo rate is the rate at which Reserve bank lends to the banks while reverse repo is the rate at which banks lend to the reserve banks.

 THE COMMERCIAL BILL MARKET

The commercial bill market is the sub-market in which the trade bills or the commercial bills are handled. The commercial bill is a bill drawn by one merchant firm on the other.

 THE CERTIFICATE OF DEPOSIT MARKET

A certificate of deposit (CD) is a certificate issued by a bank to depositors of funds that remain on deposit at the bank for a specified period. Thus, CDs are similar to the traditional term deposits but are negotiable and

tradeable in the short term money markets.

 THE COMMERCIAL PAPER MARKET

The commercial paper (CP) is a short-term instrument of raising funds by corporates. It is essentially a sort of unsecured promisory note sold by the issuer to a banker or a security house.

 MONEY MARKET MUTUAL FUNDS

A scheme of money market mutual funds (MMFs) was introduced by the RBI in April 1992. the objective of the scheme was to provide an additional short-term avenue to the individual investors.