financial management service regarding .pdf

Financial management services

1. MONEY
MARKET
ErumHussain
Department of Commerce
Dr. D. Y. PatilArts, Commerce & Science
College, Pimpri, Pune-18

2. Money Market
Moneymarketisaplacefortradinginmoneyandshort
termfinancialassetsthatareclosesubstitutesofmoney.
Providesanopportunityforbalancingtheshortterm
surplusfundsofinvestorswithshorttermrequirementsof
borrowers.

3. Marketforshorttermloansi.e.lessthanoneyear.
Donotdealinmoneybutnearmoneyassets.
Moneymarketisnotaplacebutanactivity.
Thetransactionsarecarriedoutbytelephone,mail
etc.amongpeoplewhomayhavenevermetone
other.
Example:Bombaymoneymarket,NewYorkmoney
market

4. Thecentrefordealings,mainlyshortterm
character,inmonetaryassets;itmeetsthe
shorttermrequirementsofborrowersand
provideliquidityandcashtothelenders.

5. Characteristics of Money Market
RBIoccupiesanimportantpositioninthemoneymarket.
Providesshorttermfundstovariousborrowers.
Efficientmechanismforcostcontrol,creditcontrol.
Enablesbusinessmentoinvesttheirtemporarysurplus

6. Characteristics of a
developed money Market
Developed commercial banking system
Presence of a central bank
Availability of ample resources
Near money assets
Sub markets

7. Players in Indian Money
Market
RBI
Commercial banks
Financial institutions
Brokers
Corporate units
Discount and finance house of India

8. Functions Of Money Market
1.Economicdevelopmentofthecountry:
Provideshorttermfunds
Ensuresregularsupplyoffundsthroughitssub-markets
andinstruments
Helpsineconomicdevelopmentbyprovidingfinancial
assistancetotrade,commerceandindustry.

9. 2.Profitableinvestment:
oHelpscommercialbankstousetheirexcessreservesin
profitableinvestments.Maximizeprofitsbyinvesting
theirexcessreserves.
oExcessreservesareinvestedinnearmoneyassetswhich
arehighlyliquidandcanbeeasilyconvertedintocash.

10. 3.Helptogovernment:Borrowsshorttermfundsatvery
lowinterestrates.
4.HelptocommercialBank:thebankswithdeficitof
fundscanraisefundsfrommoneymarketatalowrateof
interest.
5.EncouragementtoSavingsandinvestment:it
encouragessavingandinvestmentbytransferringfunds
fromonesectortoanothersector.

11. Money
Market
Components InstitutionsInstruments

12. Components
Call money
Market
Collateral
loan
Market
Acceptance
Market
Bill Market

13. 1. Call Money Market
Itisthemarketforveryshorttermfunds,alsocalledmoneyat
callandshortnotice.
Theseloansaregivenforaveryshortperiodnotexceeding7
days.
Moreoftenfromdaytodayorforovernightonlyi.e.24hours.
Highlyliquidmarket
Loansareunsecured

14. 2. Collateral loan market
Backedbythesecurities,stocksandbonds.
Collateralsecuritiesmaybeintheformofsomevaluablesay
govt.bondswhichareeasilymarketableanddonotfluctuate
muchinprices.
Thecollateralisreturnedtotheborrowerwhentheloanis
repaid
Oncetheborrowerisunabletorepaytheloan,thecollateral
becomesthepropertyofthelender.
Theseloansaregivenforfewmonths.

15. 3. Acceptance Market
Bankers’acceptanceisadraftdrawnbyanindividualora
firmuponabankandacceptedbythebankwherebyitis
orderedtopaytotheorderofadesignatedpartyorto
beareracertainsumofmoneyataspecifiedtimeinfuture.
Themarketwherethebankers’acceptanceareeasilysold
anddiscountedisknownasacceptancemarket.
Abanker’sacceptancecanbeeasilydiscountedinthe
moneymarketbecausetheycarrysignatureofthebankers.

16. 4. Bill Market
Itisamarketinwhichshorttermpapersorbills
areboughtandsold.
Short
term
papers
Treasury
bills
Bills of
exchange

17. Abillofexchangeisawrittenunconditionalorderwhich
issignedbythedrawerrequiringthedraweetopayon
demandoratfixedfuturetime,adefinitesumofmoney.
Treasurybillsaregovernmentpaperssecuritiesforashort
periodusuallyof91daysduration.
Treasurybillsarepromissorynotesofthegovernmentto
payaspecifiedsumafteraspecifiedperiod.

18. MONEY
MARKET
INSTITUTIONS

19. 1. Commercial Banks
Thesearethebackboneofthemoneymarket.
Thesebanksusetheirshorttermdepositsforfinancing
tradeandcommerceforshortperiod.
Theyinvesttheirsurplusfundsindiscountingbillsof
exchange.
Commercialbanksputtheirexcessreservesindifferent
formsorchannelsofinvestmentswhichsatisfytheir
liquidityandprofitabilityneeds.

20. 2. Central bank
Playsavitalrole
Monetaryauthority
Actsasanapexinstitution
Lenderoflastresort
Controllerandguardianofmoneymarket
Raisesorreducesthemoneysupplyandcredittoensure
economicstabilityintheeconomy.

21. 3. Acceptance Houses
Functionsasintermediariesbetweenimportersand
exportersandbetweenlendersandborrowersinthe
shortperiod.
Specializeinacceptanceofcommercialbills/trade
bills.

22. 4. Non-banking financial
intermediaries
Resorttolendingandborrowingofshorttermfunds
inthemoneymarket.
E.g.Insurancecompanies,investmenthouses,
providentfundsetc.

23. Money
market
instruments

24. Instruments
Treasury bills
Call and
short notice
money
market
Certificate of
deposits
Commercial
Paper
REPO
Commercial
Bills

25. 1. Commercial bills
Writteninstrumentcontaininganunconditionalorder
Signedbythedrawer
Directingacertainpersontopayacertainsumof
moneyonlyto,ororderofacertainperson,orto
bearerofaninstrumentatafixedtimeinfutureoron
demand
Billdrawnwhengoodsaresoldoncredit
Buyeracceptsthebillandreturntoseller
Thesellermayeitherretainthebillorgetit
discounted

26. 2. Treasury Bills
Itisashorttermgovernmentsecurity
Usuallyof91days,180daysor365daysduration
Soldbycentralbankonbehalfofgovernment
Nofixedrateofinterestpayable
Soldonbasisofcompetitivebidding

27. 3. Call and short notice money
Call money refers to money given for very short period
Taken for a day or overnight but not exceeding seven
days in any circumstances.
Notice money refers to a money given for upto14 days
If the loan is given for 1 day –Money at call
If loan cannot be called back on demand and will require
notice of atleast3 days –Money at short notice

28. 4. Certificate of deposit
Thesearemarketablereceiptsinbearerorregisteredform
offundsdepositedinabankforaspecifiedperiodat
specifiedrateofinterest
Freelytransferable
Liquidandrisklessintermsofdefaultofpaymentof
interestandprincipal.

29. 5. Commercial Papers
Theseareshorttermusancepromissorynotes
Issuedbyreputedcompanieswithgoodcreditrating
andhavingsufficienttangibleassets
Negotiablebyendorsementanddelivery
Normallyissuedbybanks,publicutilities,insurance
andfinancecompanies.

30. 6. REPO
UnderREPO,holderofsecuritiessellsthemtoan
investorwithanagreementtorepurchaseat
predetermineddateandrate.
Alsocalledreadyforwardtransactionasitinvolves
sellingasecurityonspotbasisandrepurchasingthe
sameonforwardbasis.

31. Defects in Indian money market
a
•Existence of unorganized money market
•Seasonal diversity of money market
nb
•Lack of integration
Nn•Disparity in interest rates
•Lack of very well organized banking system

32. Defects in Indian money market
a•Shortage of funds
•Narrow bill market
nb•Wasteful Competition
Nn•Inadequate control by RBI
•No contact with Foreign money market

33. Reforms in Indian Money Market
Development
of money
market
instruments
Deregulation
of interest
rates
Institutional
development
Permission
to foreign
institutional
investors