Money Market Bhupendra Pt. Singh Imrt Business School Lucknow

8/14/2019 Money Market Bhupendra Pt. Singh Imrt Business School Lucknow

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WELCOMEWELCOMETOTO

ALL OF YOUALL OF YOU


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MONEYMONEYMARKETMARKET

PRESENTED BYPRESENTED BY

BHUPENDRA PRATAP SINGHBHUPENDRA PRATAP SINGH

ROLL NO.---81020ROLL NO.---81020

IMRT BUSINESS SCHOOL LUCKNOWIMRT BUSINESS SCHOOL LUCKNOW

PGDM 1PGDM 1STST YEARYEAR


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CONTENTSCONTENTS

What is Money Market?What is Money Market?

Features of Money Market?Features of Money Market?

Objective of Money Market?Objective of Money Market? Importance of Money Market?Importance of Money Market?

Composition of Money Market?Composition of Money Market?

Instrument of Money Market?Instrument of Money Market?

Structure of Indian Money Market?Structure of Indian Money Market?

Disadvantage of Money Market?Disadvantage of Money Market?


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Continued.Continued.

Characteristic features of aCharacteristic features of a

developed money Market?developed money Market?

Recent development in MoneyRecent development in Money

Market?Market?

SummarySummary


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1! What is Money Market?1! What is Money Market?

As per RBI definitions A market for shortAs per RBI definitions A market for shortterms financial assets that are closeterms financial assets that are closesubstitute for money, facilitates thesubstitute for money, facilitates theexchange of money in primary andexchange of money in primary and

secondary market.secondary market.

The money market is a mechanism that The money market is a mechanism thatdeals with the lending and borrowing odeals with the lending and borrowing of

short term funds (less than one year).short term funds (less than one year).

A segment of the financial market in whichA segment of the financial market in whichfinancial instruments with high liquidity andfinancial instruments with high liquidity and

very short maturities are traded.very short maturities are traded.


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It doesnt actually deal in cash orIt doesnt actually deal in cash or

money but deals with substitute ofmoney but deals with substitute of

cash like trade bills, promissorycash like trade bills, promissory

notes & govt papers which cannotes & govt papers which can

converted into cash without any lossconverted into cash without any loss

at low transaction cost.at low transaction cost.

It includes all individual, institutionIt includes all individual, institution

and intermediaries.and intermediaries.


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2 ! Features of Money Market?2 ! Features of Money Market?

It is a market purely for short-terms fundsIt is a market purely for short-terms funds

or financial assets called near money.or financial assets called near money.

It deals with financial assets having aIt deals with financial assets having a

maturity period less than one year only.maturity period less than one year only.

In Money Market transaction can not takeIn Money Market transaction can not takeplace formal like stock exchange, onlyplace formal like stock exchange, only

through oral communication, relevantthrough oral communication, relevant

document and written communicationdocument and written communication

transaction can be done.transaction can be done.


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Continued..Continued..

Transaction have to be conducted withoutTransaction have to be conducted withoutthe help of brokers.the help of brokers.

It is not a single homogeneous market, itIt is not a single homogeneous market, itcomprises of several submarket like callcomprises of several submarket like callmoney market, acceptance & bill market.money market, acceptance & bill market.

The component of Money Market are the The component of Money Market are thecommercial banks, acceptance houses &commercial banks, acceptance houses &NBFC (Non-banking financial companies).NBFC (Non-banking financial companies).


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3 ! Objective of Money Market?3 ! Objective of Money Market?

To provide a parking place to employ shortTo provide a parking place to employ shortterm surplus funds.term surplus funds.

To provide room for overcoming short termTo provide room for overcoming short term

deficits.deficits.

To enable the central bank to influence andTo enable the central bank to influence andregulate liquidity in the economy throughregulate liquidity in the economy through

its intervention in this market.its intervention in this market.

To provide a reasonable access to users oTo provide a reasonable access to users ofshort-term funds to meet their requirementshort-term funds to meet their requirement

quickly, adequately at reasonable cost.quickly, adequately at reasonable cost.


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4 ! Importance of Money Market?4 ! Importance of Money Market?

o Development of trade & industry.Development of trade & industry.

o Development of capital market.Development of capital market.

o Smooth functioning of commercialSmooth functioning of commercial

banks.banks.

o Effective central bank control.Effective central bank control.

o Formulation of suitable monetaryFormulation of suitable monetary

policy.policy.

o

Non inflationary source of finance toNon inflationary source of finance to


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5 ! Composition of Money Market?5 ! Composition of Money Market?

Money Market consists of a number ofMoney Market consists of a number of

sub-markets which collectivelysub-markets which collectively

constitute the money market. Theyconstitute the money market. They

are,are, Call Money MarketCall Money Market

Commercial bills market or discountCommercial bills market or discount

marketmarket

Acceptance marketAcceptance market

Treasury bill marketTreasury bill market


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6 ! Instrument of Money Market?6 ! Instrument of Money Market?

A variety of instrument are available in aA variety of instrument are available in a

developed money market. In India till 1986,developed money market. In India till 1986,

only a few instrument were available.only a few instrument were available.

They wereThey were

Treasury billsTreasury bills

Money at call and short notice in the callMoney at call and short notice in the callloan market.loan market.

Commercial bills, promissory notes in theCommercial bills, promissory notes in the

bill market.bill market.


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New instrumentNew instrument

Now, in addition to the above the followingNow, in addition to the above the followingnew instrument are available:new instrument are available:

Commercial papers.Commercial papers. Certificate of deposit.Certificate of deposit. Inter-bank participation certificates.Inter-bank participation certificates.

Repo instrumentRepo instrument Banker's AcceptanceBanker's Acceptance Repurchase agreementRepurchase agreement Money Market mutual fundMoney Market mutual fund


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Treasury Bills (T-Bills)Treasury Bills (T-Bills)

(T-bills) are the most marketable money(T-bills) are the most marketable moneymarket security.market security.

They are issued with three-month, six- They are issued with three-month, six-month and one-year maturities.month and one-year maturities. T-bills are purchased for a price that is lessT-bills are purchased for a price that is less

than their par(face) value; when theythan their par(face) value; when they

mature, the government pays themature, the government pays theholder the full par value.holder the full par value. T-Bills are so popular among money T-Bills are so popular among money

market instruments because omarket instruments because of

affordabilit to the individual investors.affordability to the individual investors.


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Certificate of deposit (CD)Certificate of deposit (CD)

A CD is a time deposit with a bank.A CD is a time deposit with a bank. Like most time deposit, funds can notLike most time deposit, funds can not

withdrawn before maturity withoutwithdrawn before maturity without

paying a penalty.paying a penalty. CDs have specific maturity date,CDs have specific maturity date,

interest rate and it can be issued ininterest rate and it can be issued in

any denomination.any denomination. The main advantage of CD is thei The main advantage of CD is their

safety.safety.

Anyone can earn more than a savingAnyone can earn more than a savingaccount interest.account interest.


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Commercial paper (CP)Commercial paper (CP)

CP is a short term unsecured loan issuedCP is a short term unsecured loan issuedby a corporation typically financing day toby a corporation typically financing day today operation.day operation.

CP is very safe investment because theCP is very safe investment because thefinancial situation of a company can easilyfinancial situation of a company can easily

be predicted over a few months.be predicted over a few months.

Only company with high credit ratingOnly company with high credit ratingissues CPs.issues CPs.


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Repurchase agreement (Repos)Repurchase agreement (Repos)

Repo is a form of overnight borrowing andRepo is a form of overnight borrowing and

is used by those who deal in governmentis used by those who deal in government

securities.securities.

They are usually very short term They are usually very short term

repurchases agreement, from overnight torepurchases agreement, from overnight to

30 days of more.30 days of more.

The short term maturity and government The short term maturity and governmentbacking usually mean that Repos providebacking usually mean that Repos provide

lenders with extreamly low risk.lenders with extreamly low risk.

Repos are safe collateral for loans.Repos are safe collateral for loans.


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Banker's AcceptanceBanker's Acceptance

A bankers acceptance (BA) is a short-termA bankers acceptance (BA) is a short-termcredit investment created by a non-credit investment created by a non-financial firm.financial firm.

BAs are guaranteed by a bank to makeBAs are guaranteed by a bank to makepayment.payment. Acceptances are traded at discounts fromAcceptances are traded at discounts from

face value in the secondary market.face value in the secondary market. BA acts as a negotiable time draft foBA acts as a negotiable time draft for

financing imports, exports or othefinancing imports, exports or othertransactions in goods.transactions in goods.

This is especially useful when the credit This is especially useful when the creditworthiness of a foreign trade partner isworthiness of a foreign trade partner is

unknown.unknown.


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7 ! Structure of Indian Money7 ! Structure of Indian Money

Market?Market?

I :- ORGANISED STRUCTUREI :- ORGANISED STRUCTURE

1. Reserve bank of India.1. Reserve bank of India.

2. DFHI (discount and finance house of India).2. DFHI (discount and finance house of India).

3. Commercial banks3. Commercial banksi. Public sector banksi. Public sector banksSBI with 7 subsidiariesSBI with 7 subsidiariesCooperative banksCooperative banks20 nationalised banks20 nationalised banks

ii. Private banksii. Private banksIndian BanksIndian BanksForeign banksForeign banks

4. Development bank4. Development bankIDBI, IFCI, ICICI, NABARD, LIC, GIC, UTI etc.IDBI, IFCI, ICICI, NABARD, LIC, GIC, UTI etc.


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Continued..Continued..

II. UNORGANISED SECTORII. UNORGANISED SECTOR

1. Indigenous banks1. Indigenous banks2 Money lenders2 Money lenders3. Chits3. Chits

4. Nidhis4. Nidhis

III. CO-OPERATIVE SECTORIII. CO-OPERATIVE SECTOR

1. State cooperative1. State cooperative

i. central cooperative banksi. central cooperative banksPrimary Agri credit societiesPrimary Agri credit societiesPrimary urban banksPrimary urban banks

2. State Land development banks2. State Land development bankscentral land development bankscentral land development banks

Primary land development banksPrimary land development banks


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8 ! Disadvantage of Money Market8 ! Disadvantage of Money Market

Purchasing power of your moneyPurchasing power of your moneygoes down, in case of up in inflation.goes down, in case of up in inflation.

Absence of integration.Absence of integration. Absence of Bill market.Absence of Bill market. No contact with foreign MoneyNo contact with foreign Money

markets.markets. Limited instruments.Limited instruments. Limited secondary market.Limited secondary market.

Limited participants.Limited participants.


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10 ! Recent development in10 ! Recent development in

Money MarketMoney Market

Integration of unorganised sector with theIntegration of unorganised sector with theorganised sectororganised sector

Widening of call Money marketWidening of call Money market

Introduction of innovative instrumentIntroduction of innovative instrument Offering of Market rates of interestOffering of Market rates of interest Promotion of bill culturePromotion of bill culture Entry of Money market mutual fundsEntry of Money market mutual funds

Setting up of credit rating agenciesSetting up of credit rating agencies Adoption of suitable monetary policyAdoption of suitable monetary policy Establishment of DFHIEstablishment of DFHI Setting up of security trading corporation ofSetting up of security trading corporation of

India ltd. (STCI)India ltd. (STCI)


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11 !11 ! SummarySummary

The money market specializes in debt The money market specializes in debtsecurities that mature in less than onesecurities that mature in less than oneyear.year.

Money market securities are very liquid,Money market securities are very liquid,

and are considered very safe. As a result,and are considered very safe. As a result,they offer a lower return than otherthey offer a lower return than othersecurities.securities.

The easiest way for individuals to gain The easiest way for individuals to gain

access to the money market is through aaccess to the money market is through amoney market mutual fund.money market mutual fund.

T-bills are short-term governmen T-bills are short-term governmensecurities that mature in one year or lesssecurities that mature in one year or lessfrom their issue date.from their issue date.

T-bills are considered to be one of the T-bills are considered to be one of the


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A certificate of deposit (CD) is a time depositA certificate of deposit (CD) is a time depositwith a bank.with a bank.

Annual percentage yield (APY) takes intoAnnual percentage yield (APY) takes intoaccount compound interest, annualaccount compound interest, annualpercentage rate (APR) does not.percentage rate (APR) does not.

CDs are safe, but the returns aren't great, andCDs are safe, but the returns aren't great, andyour money is tied up for the length of theyour money is tied up for the length of theCD.CD.

Commercial paper is an unsecured, short-Commercial paper is an unsecured, short-term loan issued by a corporation. Returnsterm loan issued by a corporation. Returnsare higher than T-bills because of theare higher than T-bills because of thehigher default risk.higher default risk.

Bankers acceptance (BA) are negotiable timeBankers acceptance (BA) are negotiable timedraft for financing transactions in goods.draft for financing transactions in goods.

Repurchase agreement (repos) are a form oRepurchase agreement (repos) are a form of


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Money Market Bhupendra Pt. Singh Imrt Business School Lucknow

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