Submitted To :

Prof. Dinesh Kumar

HPUBS

MONEY MARKET
INSTRUMENTS

Submitted By:
Garima Pathania(3223)
Kriti Kailash (3247)
Jyoti Sukhija(3259)
Shivani(3315)
Yukti Thakur

MONEY MARKET

RBI defines A market for short terms

financial assets that are close substitute
for money, facilitates the exchange of
money in primary and secondary market.

The money market is a mechanism that

deals with the lending and borrowing of

short term funds (less than one year).

Asegment of the financialmarket in which

financial instruments with high liquidity

and very short maturities are traded.

Features of Money Market

It is a market purely for short-terms funds or

financial assets called near money.

It deals with financial assets having a maturity

period less than one year only.

Transaction have to be conducted without the

help of brokers.

Continued..
It

is not a single homogeneous market, it

comprises of several submarket like call money
market, acceptance & bill market.

The

component of Money Market are the

commercial banks, acceptance houses & NBFC
(Non-banking financial companies

Importance of Money Market

Development of trade & industry.
Development of capital market.
Smooth functioning of commercial banks.
Effective central bank control.
Formulation of suitable monetary policy.
Non inflationary source of finance to

government.

Functions of money market

Economic development Money
market assures supply of funds;
financing is done through discounting
of the trade bills, commercial banks,
acceptance houses and brokers.
Profitable Investment the excess
reserves of commercial banks invested
in near money assets.
Borrowings by the Government short
term funds at very low interest.

 Importance For Central Bank If the

money market is well developed, the

central bank implements the monetary
policy successfully.
Mobilization of Funds helps in
transferring funds from one sector to
another.
Savings And Investment encouraging
savings and investment by promoting
liquidity and safety of financial assets.
Self-sufficiency Of Commercial Banks
commercial banks can meet their
financial requirements by recalling some
of their loans.

Structure of Indian Money Market

I :- ORGANISED STRUCTURE
1. Reserve bank of India.
2. DFHI (Discount And Finance House of India).
3. Commercial banks
i. Public sector banks-27
SBI
Cooperative banks
20 nationalised banks
ii. Private banks
Indian Banks
Foreign banks
4. Development bank
IDBI, IFCI, ICICI, NABARD, LIC, GIC, UTI etc.

II.

UNORGANISED SECTOR
1. Indigenous banks
2 Money lenders
3. Chits
4. Nidhis

III. CO-OPERATIVE SECTOR

1. State cooperative
i)Central cooperative banks
ii)Primary Agri credit societies
iii)Primary urban banks
2. State Land development banks
i)Central land development banks
ii)Primary land development banks

MONEY MARKET INSTRUMENTS

Investment in money market is done

through money market instruments.

Money market instrument meets short
term requirements of the borrowers and
provides liquidity to the lenders
The most active part of the money
market is the market for overnight call
and term money between banks and
institutions and repo transactions

1.GOVERNMENT SECURITIES
(G- Secs)
Issued by the Government for raising a public

loan or as notified in the official Gazette.

Maturity ranges from of 2-30 years.
G-secs consist of Government Promissory
Notes, Bearer Bonds, Stocks or Bonds,
Treasury Bills or Dated Government
Securities.
No default risk as the securities carry
sovereign guarantee.
Ample liquidity as the investor can sell the
security in the secondary market

2. MONEY MARKET AT CALL

AND SHORT NOTICE
Money at call is a loan that is repayable

on demand, and money at short notice is

repayable within 14 days of serving a
notice.
Participants are banks & all other Indian
Financial Institutions as permitted by
RBI.
Banks borrow call funds for a variety of
reasons to maintain their CRR, to meet
their heavy payments, to adjust their
maturity mismatch etc.

3. TREASURY BILLS
Short term (up to one year) borrowing

instruments of the Government of India.

Enable investors to park their short term
surplus funds while reducing their
market risk.
Issued at a discount to face value. The
return to the investor is the difference
between the maturity value and issue
price.
RBI issues T-Bills for three different
maturities: 91 days, 182 days and 364

Important qualities of Treasury

bills
The high liquidity
Absence of risk of default
Ready availability
Assured yield
Low transaction cost
Eligibility for inclusion in statutory liquidity

ratio (SLR)
Negligible capital depreciation

TYPES OF TREASURY
BILLS
Ordinary TBs
Ad hoc TBs
The ordinary TBs are issued to the public and

the RBI for enabling the government to meet

the needs of supplementary short-term
finance.
TBs, also known as ad hocs in short, has
been discontinued through the signing of two
agreements between the government and the
RBI.

Certificate Of Deposit
Short term borrowings in the form of Usance

Promissory Notes having a maturity of not less

than 15 days upto a maximum of 1 year.

Subject to payment of Stamp Duty under Indian

Stamp Act, 1899 (Central Act)

They are like bank term deposit accounts, freely

negotiable instruments often referred to as

Negotiable CD

Features Of CD
Can be issued by all scheduled commercial banks

except RRBs
Minimum period 15 days, Maximum period 1 year
NRIs can subscribe to CDs on non-repatriable
basis.
Minimum amount Rs.1 lac & in multiples of Rs.1
lac
Transferable by endorsement & delivery.
CRR & SLR are to be maintained.
CDs are to be stamped.

5.COMMERCIAL BILLS
Commercial bill is a short term,

negotiable, and self-liquidating

instrument with low risk.
Written instrument containing an
unconditional order.
Once the buyer signifies his acceptance
on the bill itself it becomes a legal
document.
Commercial bill is a short term,
negotiable, and self-liquidating
instrument with low risk.

6. COMMERCIAL PAPER
Commercial Paper is a money-market

security issued (sold) by large banks and

corporations to get money to meet short
term debt obligations .
Commercial paper is usually sold at a
discount from face value.
Interest rates fluctuate with market
conditions, but are typically lower than
banks rates.

Features
Cheaper source of funds than limits set by

banks.
Optimal combination of liquidity return.
Highly liquid instrument.
Transferable by endorsement & delivery.
Backed by liquidity & earnings of issuer.
Issued for a minimum period of 30 days
and a maximum up to one year

7.Repurchase Agreements
Repo or Reverse Repo are transactions

or short term loans in which two parties

agree to sell and repurchase the same
security.
They are usually used for overnight
borrowing
Repo/Reverse Repo transactions can be
done only between the parties approved
by RBI and in RBI approved securities

Uses of Repo
Helps banks to invest surplus cash
Helps investors achieve money market returns
with sovereign risks.
Raising funds by borrowers
Adjusting SLR/CRR positions simultaneously.
For liquidity adjustment in the system.