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FMI Assessment

The document discusses the Money Market as a segment of financial markets that deals with short-term funds, typically with maturities ranging from overnight to one year. It outlines the roles of various institutions, including the Reserve Bank of India, and the types of money market instruments such as Certificates of Deposits and Treasury Bills. Despite its development, the Indian Money Market faces several challenges but remains significant among developing countries.

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26 views3 pages

FMI Assessment

The document discusses the Money Market as a segment of financial markets that deals with short-term funds, typically with maturities ranging from overnight to one year. It outlines the roles of various institutions, including the Reserve Bank of India, and the types of money market instruments such as Certificates of Deposits and Treasury Bills. Despite its development, the Indian Money Market faces several challenges but remains significant among developing countries.

Uploaded by

aishafartyal
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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GARGI COLLEGE

(University of Delhi)

CONTINUOUS ASSESSMENT
OF
FINANCIAL MARKETS AND INSTITUTIONS

Submitted By : Sneha Fartyal


Submitted To : Mr. Haridarshan Singh
Course : B.Com (Program)
Roll no. : 220699
Semester : 5th
SUMMARY
Money Market

Financial markets are markets through which funds required by the users are supplied by the
savers of the funds. Financial Markets can be divided into two segments: the Capital Markets
and the Money Markets. The capital market is a vital segment of financial market and deals
in financial claims, which have maturities of more than one year.
Money Market can be defined as a market for short term funds with maturities ranging from
overnight to one year and includes financial instruments that are considered to be close
substitutes of money. It provides an equilibrating mechanism for demand and supply of short
term funds and in the process provides an avenue for central bank intervention in influencing
both the quantum and cost of liquidity in the financial system consistent with the overall
stance of monetary policy. Money market promotes liquidity in market and also performs the
role of a wholesale market of short term debt instrument. There is no well defined place
where business is transacted in money market. It’s a system of transactions between
borrowers and lenders of short term funds. The risk of investment in money market is low.
The concept of Money market includes Money Market Institutions which refers to an
institution that deals with the short term borrowings and lending of funds. Money market can
be classified under two sector: Organised and Unorganized sector. Organised sector includes
RBI, Mutual Funds, Public & Private Banks, Cooperative societies and financial institutions
i.e. IFCI, ICCI, LIC etc. The unorganized sector includes institutions like money lenders,
Indigenous banks, Nidhis and various other unregulated non-bank financial intermediaries.
The various participants in the money market are banks, insurance company, mutual funds
and corporate. The money market instruments have a maturity period of less than one year.
The various types of money market instruments are: Certificates of deposits (CDs) ,
commercial paper (CP) , Inter-bank participation certificates, inter-bank term money,
treasury bill (T-bills), term money, Collateralized Borrowings and Lending Obligation
(CBLO) and Repos. CDs are negotiable money market instruments which are issued in
dematerialized form by commercial banks and financial institutions at discount to face value
for a specified time period. CP is a short term borrowings by corporate, financial institutions,
primary dealers from the money market. T-bills are issued by government of India to meet
the needs for short term borrowings at a discount to-face-value and their maturity period
ranges between 14 to 364 days. Term money or call money is a market where money is
borrowed or lent on demand and has a maturity ranging from one day to two weeks. CBLO
is a money market instruments that is available in electronic book entry form with a maturity
period from one day to ninety days and can be extended up to one year under the RBI
guidelines. Repos refers to a short term borrowings where one party who sells the security
agrees to repurchase it in future and enables collateralized short term borrowings through
selling of debt instruments.
The function of the central bank of a country is to control and monitor the banking and
financial system of the country. The central bank ensures the economic growth, controlling
inflation and reduction of unemployment in the country. The central bank functions as an
independent authority and is responsible for controlling, regulating and stabilising the
monetary and banking structure of the country.
In India, the Reserve Bank Of India (RBI) is the Central Bank and is responsible for
managing the operations of all banks in India i.e. Public Sector banks, Private sector banks,
Foreign sector banks, Co-operative banks and Regional rural banks. RBI supervises various
aspects such as issue of license, Prudential norms, corporate governance, NYC norms,
transparency norms, risk management, audit and inspection etc. In order to regulate the
availability, cost and use of money and credit, RBI uses monetary policy which includes
tools such as Cash Reserve Ratio(CRR), Statutory Reserve Ratio(SLR), Repo Rate and
Reverse Repo Rate. Thus, Indian Money market is one of the leading money markets among
various developing countries but it still suffers from many drawbacks. Over the last decades
there has been a substantial development in the Indian money market in terms of depth,
variety of instruments and efficiency.

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