Discount Market

The market where the bankers acceptances are discounted is known as Discount market. The term discounting now often refers to lending not only against bill of exchange but also in the term of direct loans and advances. The bankers acceptances bear the signature of the banker, it can be easily discounted with less charges. The offers the advantages of temporary funds to the businessman. The bankers acceptance is different form of a cheque. In case of a bankers acceptance the amount is payable at a specified future date and in case of a cheque it is payable on demand.

Discount and Finance House of India The bill market in India was underdeveloped. Therefore, the idea of setting up a Discount and Finance House of India was innovated by the banking commission in 1972. Chore Committee also recommended in 1979, for the constitution of a discount house as an autonomous institution. Such an institution was to act as a depository of surplus liquid funds available with the banking and nonbanking financial institution. The imbalance of liquidity to create a ready market for Treasury bill, commercial bill and government security. Chakravati Committee in 1985, and Vghul Working Group in 1986, made a through examination of various facets of Indian Money Market.

Operations of DFHI
DFHI has been actively trading in all money market instruments. It has been done in following manner: A. Offering Quotes: The DFHI quotes regular bid and offers rates for treasury bills and commercial bills for rediscounting. It also provides bid price in respect of Certificates of Deposits and Commercial papers. Offer price for these instruments are also available whenever DFHI builds up portfolio of these securities. By quoting two way price prices for treasury bills, bills receivables and other instrument with a fine spared, it makes it attractive for banks to deal with the company. B. Auctions: DFHI takes part in auctions of government dated securities and it success ratio of auctions as measured by the ratio of cumulative amounts allotted to amounts has been quite high. C. High Turnover: DFHI imparts greatly flexibility to banks and greater liquidity to financial instruments by ensuring high turn over of the companys operations in money market asset rather than becoming a depository of these assets. D. Reduced Margins: By reducing its margin i.e. the spread between bid and offer price DFHI makes trading in financial instruments more attractive. With significant resources at this command, greater confidence of money market operations in its

functioning DFHI has come to occupy in effective presence in the realm of Indian Money Market.