INSTRUMENTS OF MONEY

MARKET

PRESENTED BY:-
NIKITA SAINI
 MONEY MARKET
• Money market is a key component of financial system.
• It deals with short term funds with maturity period of 1 year or less than one year.
• Place where large financial institutions and government meet their short term cash needs.
• It is considered as safest place for investment due to its highly liquid securities and their
short term maturities.
• “The money market is a market which trades in short term, highly liquid, negotiable debt
instruments of one year or less in maturity.”
By:- J.A. Cocharan
 INSTRUMENTS OF MONEY
MARKET
Commercial Paper(CP)
• Short term unsecured promissory note issued by highly rated companies and financial
institutions.
• It is used for bridge financing(floatation cost)
• Helps the company to raise funds quickly with low cost.
• Can be issued directly by the company or the dealers.
• Maturity period:- 1 day to 1 year.
Call Money Market
• Short term financial assets that are readily convertible into cash are traded.
• Duration of loan vary from single day or fortnight.
• It is mainly an inter-bank market to maintain CRR with RBI.
• To meet the sudden requirements of funds, call money is main option for the banks to
maintain equilibrium of the short term liquidity position of the bank.
• But in case call rates are higher then it is better for a bank to go for other options like CP,
CD etc.
Certificate Of Deposit(CD)
• Issued by commercial and financial banks.
• CD are like bank term deposits but are different in one aspect from each other as term
deposits are not negotiable instrument but CD is freely negotiable.
• Rate of return is higher in CD as compare to bank deposits.
• Issued by scheduled commercial banks except RRB’s and Local area bank.
• Maturity period:- 7 days to 1 year from the date of issue.
• Minimum amount of CD is ₹ 1 or its multiples.
Treasury Bills
• Represents short term borrowing of the government.
• It is issued by RBI on behalf of govt. of india.
• It is also called T-Bills with zero coupon securities and pay no interest.
• Issued at discount and redeemed at Par value at maturity.
• Most secured and highly liquid as it is sold and bought by RBI.
• Issued in the form of promissory notes.
• The returns are lesser than CP.
• Minimum amount of T-Bills is ₹ 25000.
 Commercial Bills
• A business draws a bill of exchange of favour of other in lieu of credit purchase.
• When trade bill is accepted by a commercial bank for discounting it is called commercial
bill.
• Freely negotiable instrument.
• Usually drawn for a period of 3 months.
• Maturity period:- 7 days to 1 year.
THANK YOU