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MONEY MARKETMeaning

“The money market is the collective name given to the various firms and institutions that deal in the various grades of near money.”

- Crowther

Thus Money Market refers to the institutional arrangements facilitating Borrowing and Lending of short term funds.

Like :- Treasury bill , Banker’s Acceptance, Commercial Papers etc.

Made By: Khushbu Malara, FMS, CMAT 3 SEM

Made By: Khushbu Malara, FMS, CMAT 3 SEM 2

1) It involves in arrangement of short term funds.2) It is not a market but collection of markets.3) It is commodity market.4) There is network of large number of participants in

the money market.5) It is wholesale market of short term debt

instruments.6) It tell about the trends in liquidity and interest rate.7) Transactions have to be conducted without the help

of brokers.

Characteristics of Money Market

Made By: Khushbu Malara, FMS, CMAT 3 SEM 3

1) It provide short term funds to businessmen, industrialists, trader, etc. to meet their day to day requirements.

2) It enable businessmen, with temporary surplus funds to invest them for a short period.

3) It serves as a medium by which the RBI exercises control on the credit creation.

4) It serve an important guide to the government in its monetary policy.

5) It is an important source of financing trade and industry though bill, commercial papers, etc.

Importance of Money Market

Made By: Khushbu Malara, FMS, CMAT 3 SEM 4

1) To provide a parking place to employ short term surplus funds.

2) To provide room for overcoming short term deficits.3) To enable the Central Bank to influence and regulate

liquidity in the economy through its intervention in this market.

4) To provide a reasonable access to users of short-term funds to meet their requirements quickly, adequately and at reasonable costs.

Objectives of Money Market

Made By: Khushbu Malara, FMS, CMAT 3 SEM 5

Money Market Instrument & Constitutes

CLASSIFICATION OF MONEY MARKET

CALL MONEY MARKET

COLLATERAL LOAN

MARKET ACCEPTANCE MONEY MARKET

BILL MARKET

COMMERCIAL PAPER

MARKET

CERTIFICATE OF

DEPOSITS MARKET

Made By: Khushbu Malara, FMS, CMAT 3 SEM 6

Call money is short-term finance repayable on demand, with a maturity period of one to fifteen days, used for inter-bank transactions. The money that is lent for one day in this market is known as "call money" and, if it exceeds one day, is referred to as "notice money." Commercial banks have to maintain a minimum cash balance known as the cash reserve ratio. The Reserve Bank of India changes the cash ratio from time to time.Call money is a method by which banks lend to each other to be able to maintain the cash reserve ratio. The interest rate paid on call money is known as the call rate. It is a highly volatile rate that varies from day to day and sometimes even from hour to hour. There is an inverse relationship between call rates and other short-term money market instruments such as certificates of deposit and commercial paper. A rise in call money rates makes other sources of finance, such as commercial paper and certificates of deposit, cheaper in comparison for banks to raise funds from these sources

CALL MONEY MARKET

Made By: Khushbu Malara, FMS, CMAT 3 SEM 7

In lending agreements, collateral is a borrower's pledge of specific property to a lender, to secure repayment of a loan. The collateral serves as protection for a lender against a borrower's default—that is, it can be used to offset the loan to any borrower failing to pay the principal and interest under the terms of a loan obligation. If a borrower does default on a loan (due to insolvency or other event), that borrower forfeits (gives up) the property pledged as collateral, with the lender then becoming the owner of the property. In a typical mortgage loan transaction, for instance, the real estate being acquired with the help of the loan serves as collateral. Should the buyer fail to pay the loan under the mortgage loan agreement, the ownership of the real estate is transferred to the bank. The bank uses the legal process of foreclosure to obtain real estate from a borrower who defaults on a mortgage loan obligation. A pawnbroker is an easy and common example of a business that may accept a wide range of items as collateral rather than accepting only cash

COLLATERAL LOAN MARKET

Made By: Khushbu Malara, FMS, CMAT 3 SEM 8

A promised future payment, or time draft, which is accepted and guaranteed by a bank and drawn on a deposit at the bank. The banker's acceptance specifies the amount of money, the date, and the person to which the payment is due. After acceptance, the draft becomes an unconditional liability of the bank. But the holder of the draft can sell (exchange) it for cash at a discount to a buyer who is willing to wait until the maturity date for the funds in the deposit.

BANKER ACCEPTANCE

Made By: Khushbu Malara, FMS, CMAT 3 SEM 9

BILL MARKET Bill of Exchange :-is govern by Indian negotiable instruments act 1881, it is a written instrument containing an unconditional orders, signed by the maker, directing a certain person to pay a certain sum of money only to or to order of ,a certain person, or to the bearer of the instrument. Maturity of bills i.e. 90days, 180days, 15 months, 12months. In India 90days is most common & popular.Treasury bill :- a TB is a particular kind of finance bill or a promissory note put out by government of country. TB’s are issued at a discount by the RBI on behalf of the CG as its agent. There are 4 types of TB’s 14days, 91days, 182days, 365days. In India there currently issued 91days & 365days.Discount Market/ Houses : the efficiency , stability and administration of the risk of insolvency of financial institutions and banks require intuitions , arrangement and services for the best liquidity management in financial market.

Made By: Khushbu Malara, FMS, CMAT 3 SEM 10

COMMERCIAL PAPER MARKET  Names of CPs are Industrial paper, Finance paper and Corporate paper – the names depend upon whose liability the paper is. If it is a liability of the business or industrial or commercial or manufacturing concern. Corporate paper issued by cooperation which may be either financial or non financial CP. Issued in domestic as well as international financial market are known as Euro commercial paper. CPs are primarily issued by public utility bank holding company insurance company transportation company finance companies. MATURITY :- CPs have a very flexible maturity in the US the maturity period can not be more than 270 days It, varies between three to 270 days . In UK 7 to 364 days . In France 10 days to 7 yea4rs .In Canada 30 to 365 days . In Australia 185 days. CPS IN INDIA The frame work of CPs is suggested by working group of money market in 1987. RBI announced this scheme in March, 1989 in IM and it came into effect from January 1st 1990 The maturity period of CP can not be 30 days

Made By: Khushbu Malara, FMS, CMAT 3 SEM 11

CERTIFICATE OF DEPOSITS CDS are bank deposit a/c which are transferable from one party to another. They are marketable or negotiable short term instruments in bearer from are known as negotiable certificate of deposit. Liquidity and marketability are set to be hallmarks of CDs.The maturity period of CDs varies between two weeks to five years.

CDS IN INDIA In 1980 the possibility of introducing the CDs in India was been seriously assessed the tambe working group studied in 1982 the feasibility and recommended against it for the following reason. (a)There is no secondary money market.(b)there was administrated system of interest rate and ; (c) there was possibility that CDs might gave rice fictitious transaction. Again five years letter in 1987 vaghul working group studies the matter was given in favour of CDs so in June 1989 RBI formulated and launched a scheme permitting Banks to issued C Ds

Made By: Khushbu Malara, FMS, CMAT 3 SEM 12

Institution of Money Market

MONEY MARKET

INSTITUTIONS

CENTRAL

BANKNON

BANKING FIs

ACCEPTANCE HOUSEDISCOUNT

HOUSES

COMMERCIAL BANKS

Made By: Khushbu Malara, FMS, CMAT 3 SEM 13