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Financial Market Money Market

The document discusses money markets and their components. It defines a money market as a mechanism for lending and borrowing short-term funds that facilitates many financial transactions. The two main components are the call money market for overnight surplus bank funds and the bill market introduced by the RBI to reduce reliance on cash credit. Key institutions like the RBI, IDBI, and ICICI operate in these markets. Common money market instruments discussed include treasury bills, certificates of deposit, commercial papers, and commercial bills.

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84 views

Financial Market Money Market

The document discusses money markets and their components. It defines a money market as a mechanism for lending and borrowing short-term funds that facilitates many financial transactions. The two main components are the call money market for overnight surplus bank funds and the bill market introduced by the RBI to reduce reliance on cash credit. Key institutions like the RBI, IDBI, and ICICI operate in these markets. Common money market instruments discussed include treasury bills, certificates of deposit, commercial papers, and commercial bills.

Uploaded by

rethvi
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Financial Market

Money Market
A money market is a mechanism in which short-term funds are lent
and borrowed ,and through which a large part of the financial
transactions of a particular country or of the world are cleared. It
has two components
i)
Call Money Market:Is that part of national money market where day to day
surplus fund, mostly of banks is traded in. It is a centre where
the borrower and lender of money, and near money assets are
brought together
ii)
Bill Market:It was introduced by RBI in 1952.Under this, RBI made
advances to scheduled commercial banks in the form of
demand loans against their promissory notes. The main
objective of the bill market is to reduce the reliance on cash
credit arrangement.
Institutional Structure
The head of the structure of the money market is the Reserve Bank
of India which controls and regulates the market through discount
and finance house of the country. The institutions like IDBI,IFCI,
UTI, ICICI,LIC,GIC are operating in these markets.
Characteristics
i)
It is a market for short term funds for not exceeding a
period one year.
ii) It deals with those assets which can be converted into cash
immediately
iii) There is no formal place for money market and
transactions generally take place over telephone or fax
messages & e-mails.
iv) Transactions are made without the help of brokers.
v) The commercial bank plays generally a dominant role in
this market.
vi) The inter-bank markets match the deficits and surplus of
banks

vii) The components of money market are the commercial


banks, acceptances houses& NBFCs.
Money market Instruments
i)
Treasury bill:
Treasury Bills are money market instruments to finance the short
term requirements of the Government of India. These are
discounted securities and thus are issued at a discount to face
value. The return to the investor is the difference between the
maturity value and issue price.
In India, at present, the Treasury Bills are issued for the following
tenors 14-days,91-days, 182-days and 364-days Treasury bills.
Certificate of deposit (CD)
Like most time deposit, funds cannot be withdrawn before maturity
without paying a penalty.
CDs have specific maturity date, interest rate and it can be issued
in any denomination.
Interbank call Loans
Banks borrow from the call money market in order to meet sudden
demand for funds for payments and to obtain funds to meet any
likely shortfalls in their cash reserves to meet Cash Reserves
Ratio(CRR).
Commercial Papers
It is a short term unsecured loans issued by a corporation typically
financing day to day operations. Only companies with high credit
rating issues CPs.
Commercial Bills.
Banks make advances to the customers against commercial bills. In
the needs of funds by bankers it can be rediscounted in the money
market to get ready money.

A mechanism that allows people to buy and sell (trade) financial


securities (such as stocks and bonds), commodities (such as
precious metals or agricultural goods).
They function as a facilitating organization in the savingsinvestment process.
Markets work by placing many interested buyers and sellers in one
"place", thus making it easier for them to find each other.
1. Industrial securities market.
(A) Primary Market/New issue market:The NIM deals with new securities,i.e securities which
were not previously available and are, offered to the public
for the first time. A new block of securities for public
subscription.
.
(B)
Secondary/Stock market.
A market for old securities. The securities which have
been issued already and granted stock exchange quotation.
The stock exchanges provide a regular and continuous
market for buying and selling of securities.
i)
Acts as a channel between the investments and savings of
the community.
ii) Provides a market price for purchase/sale of securities.
iii) The process of continuous price formation.
2. Money Market:The money market is a market for overnight to short- term
funds, and for short term money and financial assets that are
close substitute for money.
Major participants:Commercial banks.
Large corporate
RBI.

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