Money Markets
-
Upload
sonalbasutkar -
Category
Documents
-
view
17 -
download
0
description
Transcript of Money Markets
1. Call Money market2. Government securities market3. T-bills market4. Commercial paper 5. Certificate of deposits6. Repo 7. Rev Repo
JYOTHI/FMS
Market – any place or process
that brings together buyers and
sellers with a view to agreeing a
price
The basis of how an economy
operates – through production
and subsequent exchange
JYOTHI/FMS
Call/Notice money is the money borrowed or lent on demand for a very short period.
When money is borrowed or lent for a day, it is known as Call (Overnight) Money. Intervening holidays and/or Sunday are excluded for this purpose. Thus money, borrowed on a day and repaid on the next working day, (irrespective of the number of intervening holidays) is "Call Money".
When money is borrowed or lent for more than a day and up to 14 days, it is "Notice Money". No collateral security is required to cover these transactions.
JYOTHI/FMS
Call loans are generally made on a cleanbasis- i.e. no collateral is required
The main function of the call moneymarket is to redistribute the pool of day-to-day surplus funds of banks amongother banks in temporary deficit of funds
The call market helps banks economizetheir cash and yet improve their liquidity
It is a highly competitive and sensitivemarket
It acts as a good indicator of the liquidityposition
JYOTHI/FMS
Those who can both borrow and lend in themarket – RBI (through LAF), banks andprimary dealers
Once upon a time, selected financialinstitutions viz., IDBI, UTI, Mutual funds wereallowed in the call money market only on thelender’s side
These were phased out and call moneymarket is now a pure inter-bank market(since August 2005)
JYOTHI/FMS
Government Securities are securities issuedby the Government for raising a public loanor as notified in the official Gazette.
They consist of Government PromissoryNotes, Bearer Bonds, Stocks or Bonds held inBond Ledger Account.
They may be in the form of Treasury Bills orDated Government Securities
JYOTHI/FMS
Issued at face value No default risk as the securities carry sovereign
guarantee. Ample liquidity as the investor can sell the security in
the secondary market Interest payment on a half yearly basis on face value No tax deducted at source Can be held in D-mat form. Rate of interest and tenor of the security is fixed at
the time of issuance and is not subject to change Redeemed at face value on maturity Maturity ranges from of 2-30 years. Securities qualify as SLR investments (unless
otherwise stated).
JYOTHI/FMS
Treasury Bill market- Also called the T-Bill market◦ These bills are short-term liabilities (CMB,14-
day, 91-day, 182-day, 364-day) of the Government of India
◦ It is an IOU(I owe You)of the government, a promise to pay the stated amount after expiry of the stated period from the date of issue
◦ They are issued at discount to the face value and at the end of maturity the face value is paid
◦ The rate of discount and the corresponding issue price are determined at each auction
◦ RBI auctions 91-day T-Bills on a weekly basis, 182-day T-Bills and 364-day T-Bills on a fortnightly basis on behalf of the central government
JYOTHI/FMS
JYOTHI/FMS
CDs are short-term borrowings in the form of UPN(UsancePromissory Notes) issued by all scheduled banks and arefreely transferable by endorsement and delivery.
Introduced in 1989
Maturity of not less than 7 days and maximum up to ayear. FIs are allowed to issue CDs for a period between 1year and up to 3 years
Subject to payment of stamp duty under the Indian StampAct, 1899
Issued to individuals, corporations, trusts, funds andassociations
They are issued at a discount rate freely determined by themarket/investors
JYOTHI/FMS
JYOTHI/FMS
Short-term borrowings by corporates, financialinstitutions, primary dealers from the money market
Can be issued in the physical form (Usance PromissoryNote) or demat form
Introduced in 1990
When issued in physical form are negotiable byendorsement and delivery and hence, highly flexible
Issued subject to minimum of Rs. 5 lacs and in themultiple of Rs. 5 lacs after that
Maturity is 7 days to 1 year
Unsecured and backed by credit rating of the issuingcompany
Issued at discount to the face value
JYOTHI/FMS
JYOTHI/FMS
OMO or Open Market Operations is a marketregulating mechanism often resorted to byReserve Bank of India. Under OMO OperationsReserve Bank of India as a market regulatorkeeps buying or/and selling securitiesthrough it's open market window. It'sdecision to sell or/and buy securities isinfluenced by factors such as overall liquidityin the system,
JYOTHI/FMS
The minimum and maximum levels of CRR areprescribed at 3% and 20% of demand and termliabilities (DTL) of the bank, respectively, underReserve Bank of India Act of 1934.
The minimum and maximum SLR areprescribed at 25% and 40% of DTL respectively,under Banking Regulation Act of 1949. TheCRR and SLR are to be maintained onfortnightly basis.
The RBI is authorized to increase or decreasethe CRR and SLR at its discretion.
JYOTHI/FMS
SLR is to be maintained in the form of the following assets:
Cash balances (excluding balances maintained for CRR)
Gold (valued at price not exceeding current market price)
Approved securities valued as per norms prescribed by RBI.
JYOTHI/FMS
. In a repo transaction two parties exchange
securities and cash with a simultaneous agreement
to reverse the transaction after a given period. Thus
a repo represents a collateralised short-term
lending transaction. The party which lends securities
(or borrows cash) is said to be doing the repo and
the party which lends cash (or borrows securities) is
said to be doing a reverse repo
JYOTHI/FMS
Discuss the latest trends on the below mentioned Financial instruments.
1. Call Money market
2. Government securities market
3. T-bills market
4. Commercial paper
5. Certificate of deposits
6. Repo
7. Reverse Repo
JYOTHI/FMS