VIDYA V.

VISWANATH
Mar Athanasios College For Advanced Studies, Tiruvalla.
MONEY MARKET
 Money market instruments are those
instruments, which have a maturity period of less
than one year.
 Geoffrey Crowther in his book” An outline of
Money” has stated “Money market is a collective
name given to the various firms and institutions
that deal with various grades of near money”.
 Reservoir of short term funds.
Characteristics of a
developed money market.
 A developed commercial banking system.
 Presence of a central bank.
 Sub-markets
 Near money assets
 Availability of ample resources
 Integrated interest rate structure
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.
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 days
4. CERTIFICATES OF
DEPOSITS

 A CD is a time deposit, financial product

commonly offered to consumers by banks.
 CDs are negotiable instrument.
 Financial Institutions are allowed to issue CDs for
a period between 1 year and up to 3 years.
 normally give a higher return than Bank term
deposit, and are rated by approved rating
agencies.
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.
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