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a WHOLE BLACK BOOK PROJECT BASED ON MONEY MARKET WITH INSTRUMENTS,CASE STUDY, SUGGESTION,QUESTIONNAIRE, AND OTHERS

Transcript of Money Market

TOPIC STUDY OF MONEY MARKET SUBMITTED BY PRIYANKA SHANTISWAROOP RAJPUT TYBFM (V SEMESTER) PROJECT GUIDE PROF. PRASANNA CHOUDHARI SUBMITTED TO UNIVERSITY OF MUMBAI

RAJHASTHANI SAMMELANSGhanshyamdas Saraf College Affiliated to University of Mumbai ACCREDITED BY NAAC BY A GRADE & Durgadevi Saraf Junior College (ARTS & COMMERCE) S.V Road, Malad (W) Mumbai: 400 064 Year: 2012-2013

RAJHASTHANI SAMMELANSGhanshyamdas Saraf College Affiliated to University of Mumbai ACCREDITED BY NAAC BY A GRADE & Durgadevi Saraf Junior College (ARTS & COMMERCE) S.V Road, Malad (W) Mumbai: 400 064 Year: 2012-2013

CERTIFICATEI Prof. Prasanna Choudhari here by certify that Ms. Priyanka Shantiswaroop Rajput a student of Ghanshyamdas Saraf College of T.Y.B.F.M (Semester V) has completed Project on STUDY OF MONEY MARKET in the Academic Year 2012-2013. This information submitted is true and original to the best of my knowledge

External examiner: Date:

Principal:

Project Co-ordinator: Date:

College Seal:

ACKNOWLEDGEMENTI take this opportunity to thank the UNIVERSITY OF MUMBAI for giving me a chance to do this project. I express my sincere gratitude to the Principal, course Coordinator Mrs. Deepti Soni Madam, Guide Prof. Prasanna Choudhari and our librarian and other teachers for their constant support and helping for completing the project. I am also grateful to my friends for giving support in my project. Lastly, I would like to thank each and every person who helped me in completing the project especially MY PARENTS

DECLARATIONI Miss Priyanka Shantiswaroop Rajput a student of Ghanshyamdas Saraf College of Arts and Commerce, Malad (W) T.Y.B.F.M (Semester V) hereby declare that I have completed the project on STUDY OF MONEY MARKET in the academic year 2012-2013. This information submitted is true and original to best of my knowledge.

Date:

Signature of the student

EXECUTIVE SUMMARYThe seventh largest and second most populous country in the world, India has long been considered a country of unrealized potential. A new spirit of economic freedom is now stirring in the country, bringing sweeping changes in its wake. A series of ambitious economic reforms aimed at deregulating the country and stimulating foreign investment has moved India firmly into the front ranks of the rapidly growing Asia Pacific region and unleashed the latent strengths of a complex and rapidly changing nation. India's process of economic reform is firmly rooted in a political consensus that spans her diverse political parties. India's democracy is a known and stable factor, which has taken deep roots over nearly half a century. Importantly, India has no fundamental conflict between its political and economic systems. Its political institutions have fostered an open society with strong collective and individual rights and an environment supportive of free economic enterprise. India's time tested institutions offer foreign investors a transparent environment that guarantees the security of their long term investments. These include a free and vibrant press, a judiciary which can and does overrule the government, a sophisticated legal and accounting system and a user friendly intellectual infrastructure. India's dynamic and highly competitive private sector has long been the backbone of its economic activity. It accounts for over 75% of its Gross Domestic Product and offers considerable scope for joint ventures and collaborations. Today, India is one of the most exciting emerging money markets in the world. Skilled managerial and technical manpower that match the best available in the world and a middle class whose size exceeds the population of the USA or the European Union, provide India with a distinct cutting edge in global competition. The average turnover of the money market in India is over Rs. 40,000 crores daily. This is more than 3 percents of the total money supply in

the Indian economy and 6 percent of the total funds that commercial banks have let out to the system. This implies that 2 percent of the annual GDP of India gets traded in the money market in just one day. Even though the money market is many times larger than the capital market, it is not even fraction of the daily trading in developed markets.

OBJECTIVES OF THE STUDY

To study about Money market To study about the structure of money market and its components To study about the money market instruments brief. To study about the role of Reserve bank of India in Indian Money market To study the defects of money market

INDEX Sr. No.1. 2. 3. 4. 5. 6. 7. 8.

ContentsIntroduction History Meaning of Money Market Objectives of Money Market Characteristic Of Money Market Structure of Money Market Component of Money Market The Role of Reserve Bank of India in Indian Money Market Defects of Money Market Questionnaire Suggestion Conclusion Case Study Articles Bibliography

Page No2 4 5 7 8 9 11 51

9. 10. 11. 12. 13. 14. 15.

52 57 62 63

IntroductionThe money market is a key component of the financial system as it is the fulcrum of monetar y operations conducted by the central bank in its pursuit of monetary policy objectives. The money market is a subsection of the fixed income market. We generally think of the term fixed income as being synonymous to bonds. In reality, a bond is just one type of fixed income security. The difference between the money market and the bond market is that the money market specializes in very short-term debt securities (debt that matures in less than one year). Money market investments are also called cash investments because of their short maturities.

Money market securities are essentially IOUs issued by governments, financial institutions and large corporations. These instruments are very liquid and considered extraordinarily safe. Because they are extremely conservative, money market securities offer significantly lower returns than most other securities.

One of the main differences between the money market and the stock market is that most money market securities trade in very high denominations. This limits access for the individual investor. Furthermore, the money market is a dealer market, which means that firms buy and sell securities in their own accounts, at their own risk. Compare this to the stock market where a broker receives commission to acts as an agent, while the investor takes the risk of holding the stock. Another characteristic of a dealer market is the lack of a central trading floor or exchange. Deals are transacted over the phone or through electronic systems. The easiest way for us to gain access to the money market is with a money market mutual funds, or sometimes through a money market bank account.

These accounts and funds pool together the assets of thousands of investors in order to buy the money market securities on their behalf. However, some money market instruments, like Treasury bills, may be purchased directly. Failing that, they can be acquired through other large financial institutions with direct access to these markets. There are several different instruments in the money market, offering different returns and different risks.

HistoryTill 1935, when the RBI was set up the Indian money market remained highly disintegrated, unorganized, narrow, shallow and therefore, very backward. The planned economic development that commenced in the year 1951 market an important beginning in the annals of the Indian money market. The nationalization of banks in 1969, setting up of various committees such as the Sukhmoy Chakraborty Committee (1982), the Vaghul working group (1986), the setting up of discount and finance house of India ltd. (1988), the securities trading corporation of India (1994) and the commencement of liberalization and globalization process in 1991 gave a further fillip for the integrated and efficient development of India money market. India has witnessed in the past two decades substantial changes in the money and capital markets. The money market scenario, which has emerged since 1980s, has witnessed new instruments and new directions have been chalked out. It is to be noted here that, strictly speaking, the money market deals with short term flow of funds whereas the capital market, embracing the stock market, deals with medium and long-term capital flows. But these two markets can not be placed in water tight compartments and there is often a spillover from one market to the other.

1) Meaning of Money MarketMoney market refers to the market where money and highly liquid marketable securities are bought and sold having a maturity period of one or less than one year. It is not a place like the stock market but an activity conducted by telephone. The money market constitutes a very important segment of the Indian financial system. The highly liquid marketable securities are also called as money market instruments like treasury bills, government securities, commercial paper, certificates of deposit, call money, repurchase agreements etc. The major player in the money market are Reserve Bank of India (RBI), Discount and Finance House of India (DFHI), banks, financial institutions, mutual funds, government, big corporate houses. The basic aim of dealing in money market instruments is to fill the gap of short-term liquidity problems or to deploy the short-term surplus to gain income on that.

2) Definition of Money Market:According to the McGraw Hill Dictionary of Modern Economics, money market is the term designed to include the financial institutions which handle the purchase, sale, and transfers of short term credit instruments. The money market includes the entire machinery for the channelizing of short-term funds. Concerned primarily with small business needs for working capital, individuals borrowings,