Money Market

Presented By:-

Atul Banga Laxminarayan Katti Preeti Haridas Meghna SahChandan Handique Kishore ModiNidhi Gupta

The Definition

• As per the RBI “center for dealing mainly of short term character, in money assets; it meets the short term requirement of the borrowers & provides liquidity to the lenders

• Money market refers to the market for short term assets that are close substitutes of money, usually with maturities of less than a year.

• It meets the short-term requirements of borrower and provides liquidity or cash to the lenders.

The Players - Money Market

• Reserve Bank of India• SBI DFHI Ltd (Amalgamation of Discount & Finance

House in India and SBI Gilts in 2004)• Commercial Banks, Co-operative Banks and Primary

Dealers are allowed to borrow and lend.• Specified All-India Financial Institutions, Mutual Funds,

and certain specified entities are allowed to access to Call/Notice money market only as lenders

• Individuals, firms, companies, corporate bodies, trusts and institutions can purchase the treasury bills, CPs and CDs.

Instruments of Money Market

• Certificate of Deposit (C.D.) • Commercial Paper (C.P.)• Repurchase Agreement• Call Money • Treasury Bills

Certificate of Deposit(C.D.)

• CDs are short-term borrowings in the form of Usance Promissory Notes having a maturity of not less than 15 days up to a maximum of one year.

• They are like bank term deposits accounts. Unlike traditional time deposits these are freely negotiable instruments and are often referred to as Negotiable Certificate of Deposits

Commercial Paper(C.P.)

• Commercial Paper (CP) is an unsecured money market instrument issued in the form of a promissory note.

• Who can issue Commercial Paper (CP) Highly rated corporate borrowers, primary dealers (PDs) and satellite dealers (SDs) and all-India financial institutions (FIs)

Repurchase Agreement

• It is a transaction in which two parties agree to sell and repurchase the same security. Under such an agreement the seller sells specified securities with an agreement to repurchase the same at a mutually decided future date and a price

• The Repo/Reverse Repo transaction can only be done at Mumbai between parties approved by RBI and in securities as approved by RBI (Treasury Bills, Central/State Govt securities).

Call Money Market

The call money market is an integral part of the Indian Money Market, where the day-to-day surplus funds (mostly of banks) are traded. The loans are of short-term duration varying from 1 to 14 days.

The money that is lent for one day in this market is known as "Call Money", and if it exceeds one day (but less than 15 days) it is referred to as "Notice Money".

Treasury Bills

Treasury bills, commonly referred to as T-Bills are issued by Government of India against their short term borrowing requirements with maturities ranging between 14 to 364 days.

All these are issued at a discount-to-face value. For example a Treasury bill of Rs. 100.00 face value issued for Rs. 91.50 gets redeemed at the end of it's tenure at Rs. 100.00.

FOREX :- The Foreign Exchange Market

The Foreign Exchange Market

The foreign exchange market is the market where the currency of one country is exchanged for the currency of another country. Most currency transactions are channelled through the world-wide interbank market. Interbank market is the wholesale market in which major banks trade with each other.

Participants of FOREX MKT

•Speculators •Arbitrageurs•Traders •Hedgers

Foreign Exchange Rates

• A foreign exchange rate is the price of one currency quoted in terms of another currency

• Direct quote

• Indirect quote

• A cross rate is an exchange rate between the currencies of two countries that are not quoted against each other, but are quoted against one common currency.

Foreign Exchange Rates

• The spot exchange rate is the rate at which a currency can be bought or sold for immediate delivery which is within two business days after the day of the trade.

• Bid-ask spread is the difference between the bid and ask rates of a currency.

• The forward exchange rate is the rate that is currently paid for the delivery of a currency at some future date.

• The forward rate may be at a premium or at a discount. • For a direct quote, the annualised forward discount or

premium can be calculated as follows:

Spot rate – Forward rate 360Forward premium (discount)

Spot rate Days

Some reasons to trade in FOREX

• 24-hour forex trading• Superior liquidity • 100:1 Leverage in forex trading• Lower transaction costs • Equal profit potential in both rising and

falling markets

Some Cautions!!!

• The market could move against you.

• You could lose your entire investment. Due to the leverage effect!!

Thank You !!!