Indian money market

Indian Money Market and Money Market Instruments(with sample images)

1. INDIAN MONEY MARKET
ADITHYA J. P.

2. CONTENTS

•Indian Money Market (History And Their Structure)
•How To Buy Money Market Instruments
•Regulatory Body Of Indian Money Market
•Money Market Instrument
•Benefits Of Money Market In Investors Point Of View
•LIBOR,LIBID,MIBOR,MIBID

4. INDIAN MONEY MARKET
MONEY MARKET
•The Money Market is a market for short-term money and
financial assets that are close substitutes of money.
•Money market exists anywhere borrowers and lenders desire to
enter into short-term credit transactions as
•in any other market.
•Money market also has three constituents like any other
market
(1) It has buyers and sellers in the form of lenders or borrowers,
(2) It has a commodity in the form of instruments like Treasury
ill and Commercial Paper etc.
(3) It has a price in the form of rate of interest.


*https://shodhganga.inflibnet.ac.in/bitstream/10603/186976/8/08_chapter%203.pdf

5. HISTORY

Till 1935, when the RBI was set up the Indian money market remained highly
disintegrated, unorganised, narrow, shallow and therefore, very backward.

➤The planned economic development that commenced in the year 1951 market
an important beginning.

➤The nationalisation of banks in 1969, setting up of various committees such as
the Sukhmoy Chakraborty Committee (1982), the Vaghul working group (1986),
the setting up of discount and finance house of India ltd. (1988), the securities
trading corporation of India (1994) and the commencement of liberalization and
globalization process in 1991 gave a further fillip for the integrated and efficient
development of India money market

*https://www.slideshare.net/runrabbit21/money-markets-of-india?from_action=save

6. STRUCTURE OF INDIAN MONEY MARKET

7. Organized Sector
This sector comprises of the governments, the RBI, the other
commercial banks, rural banks, and even foreign banks. The
RBI organizes and controls this sector. Other corporations like
the LIC, UTI, etc. also participate in this sector but not directly.
Other large companies and corporates also participate in this
sector through banks.

Unorganized Sector
These are the indigenous banks and the local money lenders and
hundis etc. Their activities are not controlled by the RBI or any
other body, so they are the unorganized sector.

9. MONEY MARKET INSTRUMENTS
➢ Treasury Bills
➢ Commercial Paper
➢ Commercial Bill
➢ Call Money
➢ Certificate of Deposits

10. 1) CALL MONEY MARKET
•It refers to the market for extremely short period loans, say
1-14 days.
• It is also called money at call or short notice.
• The participants in the call money market are mostly banks, it
is also called ‘Interbank call money market’.
FEATURES
a) Highly liquid asset.
b)Maturity: 24 hours, 1-14 days.
c)Helps banks to manage short term deficit.
d) Highly competitive and sensitive market.
e) No collateral security is needed.

11. PARTICIPANTS OF CALL MONEY MARKET
➢To commercial banks for maintaining their liquidity.
➢To the stock brokers and speculators to deal in stock exchanges.
➢To bill market for meeting matured bills.

12. 2) Treasury Bills
• It represent the short term borrowings of the Government.
• T Bills are issued only by RBI on behalf of the Central Government.
• Maturity period does not exceed 1 year.
• It is a promissory note issued by the Government under discount for
a specific period stated their in.
The Government promises to pay the specified amount mentioned
their in to the holder of the instrument on the due date.
• RBI issues T Bills for 3 different maturity periods:
91 days, 182 days and 364 days

13. IMPORTANCE OF T BILLS:
• Safety
• Liquidity
• Low transaction cost
• Source of short term funds
• Ideal short term investment

14. 3) COMMERCIAL PAPER
• Commercial paper is a short term unsecured promissory note
which are issued at a discount to face value by well know
companies, banks and corporations that are financially strong
and enjoy a high credit rating.
• Maturity period: issued for a maturities between a minimum of
7 days and maximum up to 1 year from the date of issues.
• Participants are;
All private sector companies, public sector companies etc..
•Investors;
Individuals, banks, corporates and also NRIs.

15. FEATURES
• It is a short term money market instruments with a
fixed maturity period.
• Issued at a discount to the face value.
• Unsecured promissory notes.
• It can be issued directly by a company to a investors.
(No intermediaries)

16. 4) CERTIFICATE OF DEPOSIT
•Issued by scheduled commercial bank excluding Regional
Rural Banks and scheduled co-operative banks
• It is issued in the form of promissory note.
• Maturity period: should be not less than 3 months and not
more than 1 year.
• Subscribers: Individuals, NRIs, corporations, trust,
associations.
• CDs are freely transferable but done only after 45 days.
• The minimum issue size of CDs is Rs 5 Lakh to a single
investor. When it exceeds Rs 5 Lakh, it should be in multiplies
of Rs 1 Lakh.

17. 5) REPURHASE AGREEMENT (REPO
INSTRUMENT)
•REPO stands for repurchase.
•Under REPO transaction borrower sells securities to the lender
with an agreement to repurchase them at the end of the fixed
period at a specified price. At the end of the period the borrower
will repurchase the securities at a predetermined price.
•The difference between the purchase price and the original price is
the cost of the borrower. This cost of borrowing is called Repo
rate, which is little cheaper than pure borrowing.
•From the view point of the seller a transaction is REPO, but to the
supplier of funds it is a ‘Reverse Repo’.

18. •An agreement is termed as Repo or Reverse Repo depends on
the party initiates the transaction.
•In India, Repos are normally conducted for a period of 3 days.
• The eligible securities are decided by RBI. These securities are
of;
❖ Government
❖ Promissory notes
❖ Treasury bills and
❖ Public sector banks

20. BENEFITS OF MONEY MARKET
•Gains in money market funds are usually tax exempt. This is
so because they invest mainly in government securities.
However, any dividends are taxable.
•Investments in these instruments provide a degree of safety,
contrarily volatile securities markets.
• They are a good low-risk investment, money market funds are
widely used defensive investments when the stock markets are
declining.
•Such instruments have a potential stream of fixed income.
•Suitable for those investors who focus on the preservation of
their funds and seeks some returns on their investments. Thus,
suitable for risk-averse investors.

21. •Investments with such instruments have the potential of
generating higher yields (slightly higher interest rate) as and
when we compare with conventional cash and cash equivalents.
In India, cash equivalents are money parked in savings and
current accounts at bank and post offices.
•Money market instruments are the closest to cash in hand and
hence can be regarded as the most liquid form of asset.

22. How can we buy
money market
instruments?

24. COMMERCIAL PAPER
•Commercial paper is an unsecured form of
promissory note that pays a fixed rate of interest.
•It is typically issued by large banks or corporations to
cover short-term receivables and meet short-term
financial obligations, such as funding for a new
project.

25. COMMERCIAL BILL
•Commercial bills are those bills which are issued by
businessmen or firms in exchange of the goods
purchased or sold.
• The buyer using promissory notes promises to pay to
the seller a specified amount at a particular date.

26. CERTIFICATE OF DEPOSIT
•A Certificate of Deposit (CD) is a money market instrument
which is issued in a dematerialised form against
funds deposited in a bank for a specific period.
• The Reserve Bank of India (RBI) issues guidelines
for Certificate of Deposit from time to time.

27. TREASURY BILL (T-BILL)
•Treasury bills or T-bills, which are money market
instruments, are short term debt instruments issued by
the Government of India.
• Treasury bills are zero coupon securities and pay no
interest.